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E-Mini Crude Oil Futures Volatility Forecast (13/11/2010)

The drop experienced by this market seemed to have awakened some investors from their dreams. We stated the crude oil was about to retrace 2 weeks ago and we think it will continue because of 3 reasons:

1) Many companies already bought all the oil they needed and their stocks are now almost full

2) The volatility was too low and an adjustment was “needed”

3) The seasonality patter of the crude oil has been delayed by the Fed announcement which caused the dollar to appreciate pushing further up crude prices

We believe the price will go even further down because the volatility could potentially achieve values around 2% -2.5 % (30% -35% annualised). However, if the equity markets keep going down many investors will start buying dollars and this event could maintain the price around $ 84 a barrel.

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