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5/10/2016, 3:49 PM (Source: TeleTrader)
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Oil volatility easing with rebounding prices - EIA

Crude oil prices were more volatile in the first three months of 2016, and the phenomena reminds of a period last seen the beginning of 2009. The elevated volatility occurred during a period of overall low oil prices, and "was driven by high uncertainty related to supply, demand, and inventories," according to latest report from the United States Energy Information Administration (EIA) published on Tuesday.

One of the main reasons behind volatility in crude oil prices are expected future production in leading oil-producing countries, such as the members of the Organization of the Petroleum Exporting Countries (OPEC).

State of Chinese economy was another catalyst for volatility, since the world's second largest economy, which is also the manufacturing powerhouse. The so-called emerging market (EM) economies also can influence movement in prices.

The EIA also reminded on another factor: domestic gasoline demand in the United States saw a growth in 2016 on top of already higher consumption in 2015.

Crude oil inventories and storage capacity are constrained, following a prolonged overproduction by the OPEC and non-OPEC countries.

The volatility subsided since reaching its peak in March. Prices recovered to December levels, and concerns about the state of global economy and its future growth have abated, "as inventory growth has slowed since the start of the year," said the EIA report.

The U.S. energy authority has calculated that the volatility 30-day measure at 45% was highest on March 4, and then declined to 33% on April 18.

"Volatility levels in March were the highest since early 2009, when crude oil prices were falling in response to the financial crisis and to a drop in demand for petroleum products," said EIA, and reminded that recent decline in prices resulted in volatility levels closer to average 27% seen in 2015.

Volatility is still a good indicator of market uncertainty about a value of a commodity, with daily movements mostly driven by the release of economic or supply information, such as rig count or inventories report. These change market expectations, along with unanticipated events such as recent wildfire in oil sands areas in Canadian province of Alberta, which caused fluctuation in prices.

U.S. light sweet crude West Texas Intermediate for June delivery rose 0.91% to $43.84 a barrel, and the international benchmark Brent climbed up 1.87% to $44.46 a barrel at ICE Europe by 3:35 p.m. CET. Both crudes jumped on North American market open.

The price of OPEC basket of 13 crudes stood at $40.76 a barrel on Monday, compared with $40.55 the previous Friday.

 

Image: EPA / Stefan Sauer

Breaking the News / ZR