Next Price Movement in Crude Oil Could Be Upward

US crude oil this week

On Thursday, US crude oil active futures fell 0.4% and settled at $60.2 per barrel. Since the closing level last week, US crude oil prices have risen ~5.4% as of 3:09 AM ET today. If US crude oil prices stay the current levels until the end of the trading session, it will be the fifth-highest weekly gain for US crude oil in 2019.

Next Price Movement in Crude Oil Could Be Upward

Iran factor?

On July 4, the United Kingdom seized an Iranian oil tanker. In response, Iran tried to capture a British tanker. Iran has asked the United Kingdom to release its seized oil tanker immediately. The oil market might be ignoring the tension between Iran and the West. The Brent-WTI spread is just 61 cents above the lowest level in almost a year. Usually, the spread is sensitive to any rise in geopolitical tensions in the Middle East. The significant fall in US crude oil inventories is another crucial factor that might be behind the lower spread.

What does the implied volatility suggest?

On July 11, US crude oil’s implied volatility was 27.4%—19.2% below its 15-day average. The lower implied volatility might push oil prices up. Since reaching a 12-year low in February 2016, US crude oil active futures have risen ~129.7%. Crude oil’s implied volatility has fallen ~63.6% since February 11, 2016.

Price forecast

Until July 18, US crude oil futures should close between $58.27 and $62.13 per barrel 68.0% of the time. The forecast uses crude oil’s implied volatility of 27.4% and assumes a normal distribution of prices. On July 11, US crude oil August futures fell 0.4% and settled at $60.2 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 stays above $60, it might please investors in these ETFs. In the trailing week, US crude oil active futures rose 5%, the ProShares Ultra Bloomberg Crude Oil ETF rose 13.2%, and the United States 12-Month Oil ETF rose 5.6%. These price limits also impact the S&P 500 Index (SPY). Energy stocks account for 5.2% of SPY.

Key events next week

Next week, the U.S. Energy Information Administration is scheduled to release its oil and natural gas inventory data on July 17–18. The data could be a short-term driver for oil and natural gas prices. On Monday, the EIA is scheduled to release its Drilling Productivity Report. Any change in the oil and natural gas production from the major seven shale regions impacts oil and natural gas’s price movement. The US dollar has been fluctuating, which will likely be an essential factor for oil prices. The Fed is expected to decide on interest rates on July 31.

Based on CME’s FedWatch Tool, there’s a 78.6% probability that the Fed will reduce the interest rates by 25 basis points. However, there’s a 21.4% probability that the Fed might reduce the interest rates by 50 basis points.