E-Mini Crude Oil Futures Volatility Forecast (15/05/2011)

E-Mini Crude Oil futures sharply plummeted over the last week whilst the conditional variance dropped as we correctly forecasted 1 week ago. The market opened at $ 103 plunged at $ 99 on Wednesday whilst $ 99.5 was the closing price registered on Friday.

The actual volatility is around 3.5% (55.5% in annual terms) but the TGARCH curve is still downward sloping although futures prices kept decreasing in value over the last trading days.

The volatility is clearly going through its mean reverting process, which would inevitably stop once the conditional variance reaches the 1.8% – 2% level (28.5% – 31.7% annualised).

Consequently, it is reasonable to assume that over the next hours the oscillation rate will continue its “journey” towards the equilibrium point whilst futures prices should recovery.

The HyperVolatility team remains moderately bullish on E-Mini Crude Oil futures because the variance is heavily collapsing and such a phenomenon should support the price action which could eventually rise and retest the $ 103 area by the next Friday.

However, a sideways movement of the price is not an eventuality to opt out (particularly in the first half of the next week).

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