Volatility: It's the Oil, Stupid

When it comes to volatility, there are few catalysts that can spook the market like the prospect of an oil shortage. With today’s announcement that crude oil inventories fell 8.8 million barrels when analysts were expecting a slight increase in inventory levels, the markets reacted sharply, with crude futures immediately spiking almost $4 per barrel to over $133.

In spite of today’s jump, crude is still trading below the all-time high of $135.09 and has pulled back under 130. Still, 135 will be an important resistance level to watch going forward. If 135 holds, volatility should be contained; if it is breached, expect equities to face and volatility to surge with crude prices.

One more thing:Tomorrow is the last trading day before the official beginning of the Atlantic hurricane season…

Comments

[jo0hn2:]

just so you know it went down becaused people recognized the drop as temporary from fog keeping tankers in the gulf from reaching the u.s. true or not or wether you think its valid enough to think that thats the main reason why it dropped doesnt matter thats why it went down more.

2008 May 29 07:41 PM

[ship shape ...:]

I think it went down, because after a draw of this size it almost has to be a build next time.

2008 May 30 03:47 AM

[Indyphil:]

My personal opinion is that we were overpriced at $135, the market is taking a breather after we saw demand destruction in the US. We know demand lags price considerably. I think youve got to have some big stones to go long for the next few weeks.

We really need to watch Chindian demand to understand the longer term fundamentals, and of course not ignor what Al-Naimi and friends are up to. More personal opinion but I think folks are wising up to the Saudi bluff. 12Mbpd capacity? Sure, and theres this bridge for sale too. 250 Billion barrels of 2P reserves? Hmmmm....

2008 May 30 10:59 AM

[NOWHEREMAN:]

It went down because it went down.

That plus margin requirements went up. Look for more offshore volatility. Follow Brent instead as speculators decide that Market Manipulation by the Government is increasing.

2008 May 31 03:46 AM