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E-Mini Crude Oil Futures Volatility Forecast (14/08/2011)

The last week we were bearish Crude Oil and we set $80 as a profit target for our shorts. Needless to say that our forecast was right and the abovementioned goal was achieved at the close of the first day of trading. E-Mini Crude Oil futures opened at 80.9 on Monday, rose to 81.3 on Tuesday, settled at 81.6 on Wednesday, jumped to 85.5 on Thursday and closed at 85.3 on Friday.

The current volatility is 1.7% (26.9% annualised) and the TGARCH plot is evidently displaying a downward sloping curve which seems to have almost completed its mean reverting movement and it is now ready to settle around  the 1.58% – 1.6% level (25.07% – 25.3% in annual terms).

It is worth reminding that the last figures released from the International Energy Agency are quite comforting and suggest that an increase in the industrial demand of oil is already on its way even if the slowdown of the economy made many economists re-evaluate their forecasts regarding the global demand for oil and its derivatives in the 2011.

The HyperVolatility team is moderately bullish this market because the plummet in the conditional variance should now see the market moving sideways in the first half of the week and raise in the second half. E-Mini Crude Oil futures are likely to retest the $ 87.5 – 88 per barrel by Friday but the movement is probably going to be quite slow because the general sentiment is still uncertainty.

Furthermore, the Crude Oil market went through a significant drop over the last 10 days and oil futures are now looking particularly cheap not only to investors and traders but particularly to commercial hedgers and transport companies which will probably try to purchase “on sale oil” in order to fill up their stocks.

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