Oil prices settle as volatility hits low for the year

Volatility takes a holiday

I’m dreaming of some crude movement, just like the moves we used to know! Where the options glisten and traders risking, see the premiums start to grow. I’m dreaming of some crude movement, with every option spread I write, may your trades be. And may all of your option trades go right.

Oil prices start to round off at the lower end of the trading range and start to make a decisive move higher just as Crude option volatility hits a low for the year. Crude option fell below 25% as oil sunk deep into compliancy as a well-balanced market meets a well-priced in geopolitical risk scenario and besides when it comes to Iran, Syria and Egypt there really has not been any earth shaking developments for some time. Of course when it comes to the oil market you had better beware of the sleeping lion because if it awakens we could see a major move. Of course in the nineties oil slept for most of the decade with only a few exceptions.  

Still as I have said oil seems to be bottoming at the lower end of the range and a move toward the mid-$90s the higher end of the range. So it may be a good time with the low volatility to put on bullish option strategies. Of course if we see the fiscal cliff talks break down then it is possible that we could break out on the lower emend of that range. Not likely, but possible. With low volatility option traders could straddle the market with an upward bias. Oil also should get a boost from the increased volume from the Seaway pipeline as they move more oil from Cushing, Oklahoma to the Gulf Coast. We also should get support from the Energy Information Agency report especially if it comes out like last night’s American Petroleum Institute report. The API reported that crude oil supply fell by 4.1 million barrels. That drop came partly by a drop in imports, which fell by 429,000 barrels per day. Supply in Cushing, Oklahoma did rise slightly by 118,000 barrels.  Gasoline stocks continue to explode rising by 4.2 million barrels though distillates tighten even more falling 1.9 million barrels. Below normal distillate stocks and falling temperatures should keep the heating oil on an upward trajectory.

Bad news for naughty boys and naughty girls, the price of coal and the outlook is dismal according to the International Energy Administration, yet it could still be the world’s number one energy source. In recent years getting coal was not such a bad deal as coal prices were soaring! Being naughty was kind of nice. Yet low prices means that a coal’s share of the global energy mix will continue to rise, and by 2017 coal will come close to surpassing oil as the world’s top energy source, the International Energy Agency) said today as it released its annual Medium-Term Coal Market Report  They say that although the growth rate of coal slows from the breakneck pace of the last decade, global coal consumption by 2017 stands at 4.32 billion tons of oil equivalent (btoe), vs. around 4.40 btoe for oil, based on IEA medium-term projections. The IEA expects that coal demand will increase in every region of the world except in the United States, where coal is being pushed out by natural gas. So now the big question still is whether to be naughty or nice.

Speaking of naughty, the Chinese’s canceled some bean purchases from the US after it starting rating in Brazil improving their soybean production outlook. Of course the last time the Chinese’s canceled bean purchases they came back in and ordered more.

Nat gas got a pop off of colder forecasts. We should see a 67 bcf withdrawal.

Ask Santa for Greek Bonds. Greek bonds were the best performing bond in the world and with an upgrade of their debt traders wondered why hold gold and silver when I can get a great return with less risk. Standard & Poor's ratings upgraded Greece’s credit grade to a B-, the highest since June 2011, although the bonds are still at junk status. Yet the thought that indeed Greece is improving a main safe haven reason to be long gold looks less attractive. Add to that a “Plan B” from speaker John Boehner, why stay long when stocks are flying and you can get better returns elsewhere. That is until of course we realize that the reason why stocks are flying is a Fed with a red hot printing press.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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