Crude Oil Volatility Coming Into OPEC’s Biannual Meeting

Crude Oil Volatility Coming Into OPEC’s Biannual Meeting
Getty Images

The price of crude oil fell to a low of $42.05 per barrel in late June 2017 and has not looked back since that bottom. At the end of last July, the price was back above the $50 level on West Texas Intermediate crude oil, and by the end of the year, the price was flirting with the $60 level. Last month, WTI crude oil rallied above the $70 per barrel mark for the first time since 2014 posting a high of $72.90. Brent crude oil moved to a high of $80.50 before selling on the final Friday of May caused a long overdue correction in the price of the energy commodity. 

Source: CQG

As the daily chart highlights, crude oil hit a peak at $72.90 per barrel on May 22 and the upward trajectory of the price ran out of steam. A sign that oil was in trouble near the highs was that the backwardation in both WTI and Brent did not widen as the price moved higher, it narrowed. Backwardation is a condition where deferred prices trade at a discount to nearby prices, and it is a sign that the market perceives potential supply or availability problems. Typically, when the price of crude oil moves higher, the backwardation widens, and that did not happen during the final move to almost $73 on WTI and over the $80 level on Brent crude oil.

The last leg to the upside in the oil market came following President Trump’s refusal to recertify the Iran nuclear nonproliferation agreement. Increased tensions in the Middle East, which is home to more than half the world’s reserves of crude oil, was a bullish factor for the energy commodity. Any escalation in tensions in the region could threaten production, refining, or logistical routes for the oil market and the potential for price spikes to the upside remains a clear and present danger.

On Friday, May 25 before the Memorial Day holiday weekend in the U.S. Russia and OPEC said they were considering production increases at the upcoming meeting of the international oil cartel. The price of WTI oil dropped below the $70 level and got to a low of $64.22 on June 5.

The oil ministers of OPEC will gather for their biannual meeting in Vienna, Austria on June 22 to discuss production policies for the coming six months. At their last meeting in November 2017, they extended output cuts and quotas to the end of 2018 which lifted the price of crude oil to over $60 per barrel, while economic growth around the world pushed the price higher over the past six months. The price of oil typically becomes volatile around the time of OPEC meeting, especially when the energy commodity is at a high or low level. With oil correcting from its highest price since 2014, we could see a wide price range over coming sessions leading up to the meeting. With more volatility in the market, trading opportunities in crude oil are likely to remain exciting over the coming days and weeks.

 

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.

Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.