E-Mini Crude Oil Futures Volatility Forecast (14/03/2011)

The E-Mini Crude Oil futures after reaching $ 104 a barrel retraced towards the $ 101 by the last Friday making the entire week a bearish one. Oil mini futures sharply rallied from the $ 87 – 90 to the $ 101 but it seems that, at least at the moment, the up move is running out of steam.

The actual volatility is 1.8% (28.5% in annual terms) and the TGARCH curve is clearly still upward sloping highlighting that futures prices could continue heading south even during the upcoming days.

Furthermore, a potential appreciation of the US dollar caused by concerns related to the performance on equity Indices could easily drive the dollar up (appreciating it) and oil prices down.

The staff of HyperVolatility will look for short opportunities over the next trading days because the volatility is likely to increase and should achieve 2.1% – 2.2% (33% – 34% annualised) dragging the price back down in the $ 100  area.

Nevertheless, the crude oil market is probably one of the most delicate to trade because the problems in Libya and the collapse of Japanese oil demand is going to affect strongly futures prices. In fact, the predominance of one of the above mentioned news would lead to 2 different results:

1)    Riots in Libya tend to increase oil prices

2)    Japan’s earthquake is going to drive prices down

We believe that the news from Japan are going to influence every markets and this week will be particularly intense in terms of market swings, hence, we remain bearish on E-Mini Crude Oil futures because the $ 99 – 100 area could be re-tested by the end of the week.

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