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E-Mini Crude Oil Futures Volatility Forecast (22/08/2011)

The $87 per barrel was the profit target we gave you once week ago and, once again, the analysis proved accurate. However, the meeting between Sarkozy and Merkel and the US manufacturing index data have badly hit investors’ confidence who rushed to sell all their positions.

E-Mini Crude Oil futures opened at 87.6 on Monday, touched 86.9 on Tuesday, rose 87.4 on Wednesday, plunged to 81.8 on Thursday and closed at 82.6 on Friday.

The current volatility is 2.6% (41.2% in annual terms) and the TGARCH plot is manifestly showing an aggressively upward sloping curve which implies that the high level of market oscillations are likely to remain in the market also in the upcoming trading days. Additionally, it is worth noting that the conditional variance is now trading at a sustained rank and, should the trend continue, the curve could retest the 3.4% threshold (54% annualised) in the next trading hours.

Fundamental figures are not helping either because the recent crude oil inventories figures were quite bearish although altered from the release of US strategic reserves

The HyperVolatility team is moderately bearish E-Mini Crude Oil futures because the volatility is still very high and probably destined to increase even more in the next days. Consequently, future prices could continue to plummet and settle around the $ 77 by Friday.

Oil prices are plummeting primarily because the manufacturing industry is not picking up and many investors are concerned that an ulterior slow down of the economy could decrease the global demand for the black gold.

Nevertheless, some good news coming from Germany and US could “motivate” some investors to buy but it is difficult to remain bullish when the volatility curve does not show any sign of retracement.

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