Oil volatility rebounds amid financial turmoil
Tuesday, 11 May 2010
LONDON, May 10 (Bloomberg): Crude oil volatility surged to its highest level in almost two months as turmoil across financial markets prompts speculators to sell futures contracts.
Oil's 30-day historical volatility, a measure of how much crude fluctuates around its average price during that period, jumped 53 per cent from near a three-year low in mid-April. Hedge fund managers and other speculators have pared their positions by 14 per cent in the past month, data from market regulators show. Oil prices dropped to an 11-week low in New York last week.
"The main driver has been risk aversion, driven chiefly by Eurozone sovereign risk issues," said Mike Wittner, head of oil market research at Societe Generale SA in London. Speculators are locking in profits because "there have been jitters about China, a US supply glut, uncertainty over the Gulf of Mexico spill," he said.
Futures on the New York Mercantile Exchange fell to $74.51 on May 7, the weakest intra-day price since Feb. 16, as the threat of contagion in Europe weakened the region's currency, reducing the hedging appeal of commodities. Oil rose to an 18- month high of $87.15 a barrel on the Nymex on May 3. Its 30-day volatility was at 31.087 on May 7, the highest since March 15. Futures rebounded 1.4 per cent to $75.15 at 8:53 a.m. in Singapore, retracing part of last week's 12.8 per cent decline.
The Chicago Board Options Exchange's Crude Oil Volatility Index, a measure of how much the commodity fluctuates in a 30- day period, climbed 41 per cent last week, the most since its creation in 2007.
While speculators boosted bets on rising oil prices in the week to May 4, they have reduced so-called net-long positions by 14 per cent in the past month, data from the Washington-based Commodity Futures Trading Commission shows.
Hedge funds' net-long positions were at 109,870 contracts in the week to May 4, having hit a record high of 136,000 in the week to Jan. 15.
Oil prices and the S&P 500 have increasingly moved together since September 2008, after New York-based Lehman Brothers Holdings Inc. filed for the world's biggest bankruptcy, deepening the global financial crisis.
Oil's 30-day historical volatility, a measure of how much crude fluctuates around its average price during that period, jumped 53 per cent from near a three-year low in mid-April. Hedge fund managers and other speculators have pared their positions by 14 per cent in the past month, data from market regulators show. Oil prices dropped to an 11-week low in New York last week.
"The main driver has been risk aversion, driven chiefly by Eurozone sovereign risk issues," said Mike Wittner, head of oil market research at Societe Generale SA in London. Speculators are locking in profits because "there have been jitters about China, a US supply glut, uncertainty over the Gulf of Mexico spill," he said.
Futures on the New York Mercantile Exchange fell to $74.51 on May 7, the weakest intra-day price since Feb. 16, as the threat of contagion in Europe weakened the region's currency, reducing the hedging appeal of commodities. Oil rose to an 18- month high of $87.15 a barrel on the Nymex on May 3. Its 30-day volatility was at 31.087 on May 7, the highest since March 15. Futures rebounded 1.4 per cent to $75.15 at 8:53 a.m. in Singapore, retracing part of last week's 12.8 per cent decline.
The Chicago Board Options Exchange's Crude Oil Volatility Index, a measure of how much the commodity fluctuates in a 30- day period, climbed 41 per cent last week, the most since its creation in 2007.
While speculators boosted bets on rising oil prices in the week to May 4, they have reduced so-called net-long positions by 14 per cent in the past month, data from the Washington-based Commodity Futures Trading Commission shows.
Hedge funds' net-long positions were at 109,870 contracts in the week to May 4, having hit a record high of 136,000 in the week to Jan. 15.
Oil prices and the S&P 500 have increasingly moved together since September 2008, after New York-based Lehman Brothers Holdings Inc. filed for the world's biggest bankruptcy, deepening the global financial crisis.