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E-Mini Crude Oil Futures Volatility Forecast (21/06/2011)

E-Mini Crude Oil futures opened at $ 96.8, touched 99.3 on Tuesday but then dropped to 95.2 on Wednesday whilst fluctuated around 94.9 on Thursday but settled at 93 on Friday.

The current volatility is 2.4% (38% in annual terms) and the TGARCH plot is evidently showing a downward sloping curve which is probably going to collapse even more during the next hours. In fact the mean reverting process is going to end once the conditional variance will have touched the 1.8% – 2% threshold (28.5% – 31.7% annualised).

However, it is worth noting that during the recent days a dropping variance has accompanied a continuous decrease of futures prices even though most the week was characterised by prolonged lateral movements of the price.

Nevertheless, the great decrease in volatility and its positive correlation with the price action are a non-sustainable situation which is going to end soon. Particularly, the price action will benefit from the mean reverting process of the conditional variance even if the recovery should not be extremely violent but constant.

Furthermore, the US dollar is still very weak and the market does not seem to have changed much in terms of fundamentals. Consequently, the HyperVolatility team is moderately bullish on E-Mini Crude Oil futures prices because the aforementioned factors should act as a catalyst for the price action and drag futures back into the $ 97 – 98 area by Friday.

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