Wednesday, March 21, 2012

Crude Oil & Volatility

Here's a handy toll for predicting the future price of oil.  The chart below is a one year daily chart of West Texas Crude with the Oil Volatility Index behind it:

(click chart for larger view)

If you study the chart you will see that everytime the volatility index spiked we had a dip in prices.  Here's another way to look at this inverse correlation:

This is a ratio chart of West Texas divided by the oil volatility index.  The inverse correlation becomes more apparent with the red dashed line representing the ratio and the black line being the volatility index.

It's pretty clear from both charts that that the short to intermediate term outlook is for higher oil prices.