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

Crude Oil prices plummeted sharply all week long. The violent and constant drop was manifestly caused by the concerns over a slow growth of the economy and bad figures released from the International Energy Agency (IEA). Last week, E-Mini Crude Oil futures opened at 95.2 on Monday, dropped to 93.2 on Tuesday, plummeted to 91.9 on Wednesday, precipitated to 86.4 on Thursday and closed at 87 on Friday.

The current volatility is 2.42% (38.4% annualised) and the TGARCH plot is showing an upward sloping curve which is exceptionally high and that can be used as an efficient proxy for measuring the fear in the market.

The bearish figures released by the IEA and the slow growth concerns are now the predominant feelings amongst investors and traders. Oil stocks are not empty, meaning that no new orders will be entered, and a low growth in US, Europe and emerging markets implies a decrease in the demand.

Furthermore, if we consider that the US dollar is probably going to appreciate against the Euro, we can only come to one conclusion: high volatility and plummeting prices.

The HyperVolatility team is very bearish on E-Mini Crude Oil futures because the volatility curve, already very high, does not seem to provide any signs of weakness and therefore it is reasonable to believe that the oscillation rate will keep rising over the next trading hours. Consequently, futures prices should plunge and retest the $ 80 area by Friday.

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