uploads/2019/04/image005-9.png

Crude Oil’s Implied Volatility and Price Forecast

By

Updated

Oil’s implied volatility

On April 17, US crude oil’s implied volatility was 22.1%, which is 5.5% below its 15-day average. Usually, lower implied volatility supports oil prices. The following chart shows the inverse relationship between oil prices and oil’s implied volatility. Since reaching a 12-year low in February 2016, US crude oil active futures have risen ~143.3%. Crude oil’s implied volatility has fallen ~70.6% since February 11, 2016.

Article continues below advertisement

Price forecast

In the next five trading sessions, US crude oil futures should close between $62.22 and $65.52 per barrel 68.0% of the time. The forecast is based on crude oil’s implied volatility of 22.1% and assumes a normal distribution of prices. On April 17, US crude oil June futures fell 0.5% and settled at $63.76 per barrel.

Any changes in oil could be important for equity indexes like the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA). The sentiment in oil and equity markets is often related.

Impact on ETFs

These price limits could be important for oil-tracking ETFs like the ProShares Ultra Bloomberg Crude Oil ETF (UCO) and the United States 12-Month Oil ETF (USL). In the trailing week, US crude oil June futures fell 1.2%, UCO fell 1.9%, and USL rose 0.4%.

Advertisement

More From Market Realist