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E-Mini Crude Oil Futures Volatility Forecast (04/07/2011)

The HyperVolatility team was right once again. The last week we announced that a retesting of the $ 90 threshold would have been a quite probable scenario and so it was. On the 23rd of June the market closed at $91.8 but futures prices at the beginning of the last week proved our analysis was correct and accurate.

Specifically, E-Mini Crude Oil futures opened at 90.7, rose to 92.8 on Tuesday, touched 95 on Wednesday and then moved sideways on Thursday, whose closing price was 94.9 and Friday where 94.6 was the week’s last print.

The current volatility is 2% (31.7% in annual terms) and the TGARCH plot is visibly showing a curve which has almost completed its mean reverting movement and is about to settle around its equilibrium level which is identifiable in the 1.7% – 1.75% area (26.9% – 27.7% annualised).

The decrease in volatility and the apparent calm in the Euro-Dollar market seem to suggest that a large sideways movement is going to trap the price action over the next trading hours even if we expect oil prices to plunge even more in the upcoming weeks due to the announcement that supplementary stocks will be released to IEA countries in case of emergency (and this should calm down the sentiment of traders and investors for a while).

The HyperVolatility remains bearish on E-Mini Crude Oil futures because in the medium term the volatility will rise and drag the price back down in the $ 92 – 93 area. However, we will not enter the market only if the volatility curve surpasses the 2.2% level (34.9% annualised) because, as previously mentioned, a large lateral movement should be expected.

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