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E-Mini Crude Oil Futures Volatility Forecast (23/05/2011)

E-Mini Crude Oil futures moved higher as we forecasted the last week although the rally was not as powerful as we thought. In particular, the market opened at 97 rose to 99.7 on Wednesday but 99.8 was the closing price registered on Friday.

The volatility is now around 1.9% – 2% (30.1% – 31.7% annualised) and the curve seems to suggest a quite level of market fluctuations in the upcoming days since there is a progressive “softening process” going on.

The fluctuations of the price are clearly lined to the performance of the US dollar against the euro in the last week and the surge of E-Mini Crude Oil futures has been caused by a depreciation of the American currency in the first half of the week (even though on Friday the Euro lost terrain).

Furthermore, it is evident that the market fluctuations rate is now very close to its equilibrium point which is stable at 1.4% (22.2% annualised) and the volatility will probably tend to conclude the mean reverting process before heading north once again.

The HyperVolatility team is bearish on this market because the conditional variance is likely to augment in the next trading days whilst the price should retest the $ 95.5 – $ 96 area and the ulterior strengthening of the greenback should negatively influence the oil market.

Furthermore, the extremely high oil prices we saw over the last 2 weeks had a significant impact on the global demand, which irremediably decreased, and therefore it is reasonable to believe that the OPEC will try to keep prices at a more sustainable price for a while in order to even out the imbalance.

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