Today at 10:01 AM ET, WTI (West Texas Intermediate) oil prices rose 3.8% and were at $28.65 per barrel. On Thursday, WTI prices rose by 9%. On the same day, the rise in oil prices pushed the United States Oil Fund LP (NYSEARCA:USO) up 4%. USO is an oil-tracking ETF that has exposure to WTI crude oil prices. The United States Brent Oil (NYSEARCA:BNO) holds Brent crude oil futures.
This week, Saudi Arabia decided to reduce its oil output by 1 million barrels per day—a factor behind oil’s rise. Also, on Wednesday, the EIA (U.S. Energy Information Administration) data showed a decline of 0.745 MMbbls (million barrels) in oil inventories, while analysts expected a rise of 4.14 MMbbls.
Just before a month, WTI prices turned negative due to supply glut. Many Wall Street analysts have a bearish outlook on oil. Goldman Sachs already projected a bearish outlook for oil. Of course, COVID-19 dented global oil demand. At the same time, oil is an important commodity for our energy requirements. A large fall in supply could reverse oil’s downtrend.
What implied volatility says about oil’s upturn
Implied volatility is an important coincidental indicator for oil’s price forecast. To learn more, read Oil Prices: Implied Volatility Suggests Upside Is Intact. Also, amid the recent oil downturn, the implied volatility soared.
However, in the last few weeks, the implied volatility has fallen with the rise in crude oil prices. This could be an important bullish indicator for oil’s upside. For example, with the rise in oil prices implied on Thursday, the volatility fell sharply to 83.5%. On April 21, oil’s implied volatility rose to 383%, which is its record high level. Since then, oil prices have more than doubled, while the implied volatility fell by 78.2%.
On Thursday, WTI crude oil active futures settled 70.8% and 28.4% above their 20 and 50-day moving averages, respectively. However, active futures were still 25.4% and 39.3% below their 100 and 200-day moving averages, respectively. The 100-day moving average at $38.75 is an important resistance zone for crude oil prices. If oil surpasses its 100-day moving average, then it might test the 200-day moving average at $47.36.
WTI near $50 level could help energy stocks to rise. Energy sector tracking ETFs like the Energy Select Sector SPDR ETF (NYSEARCA:XLE) has fallen 39.8%—the sharpest decline among sector-specific SPDR ETFs.