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Where US Crude Oil Could Be by Next Week

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May. 17 2019, Published 10:06 a.m. ET

Oil’s implied volatility

On May 16, US crude oil’s implied volatility was 25.2%, which is 5.3% 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 ~139.9%. Crude oil’s implied volatility has fallen ~66.5% since February 11, 2016.

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Price forecast

On May 17–24, US crude oil futures should close between $61.02 and $64.72 per barrel 68.0% of the time. The forecast is based on crude oil’s implied volatility of 25.2% and assumes a normal distribution of prices. On May 16, US crude oil June futures rose 1.4% and settled at $62.87 per barrel.

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). If US crude oil rises above $64, it might please investors in these ETFs. In the trailing week, US crude oil June futures rose 1.9%, the ProShares Ultra Bloomberg Crude Oil ETF rose 5.1%, and the United States 12-Month Oil ETF rose 2.7%.

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.

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