Crude has gone up by some 27% from recent lows without much pause. Black gold climbed above the 50 day average a few sessions ago, and these days we only hear about investors bullish on oil.
The massive move lower was most probably exaggerated by momentum chasers as late last year many had gone short crude. Huge volatility and low liquidity are the perfect ingredients for squeezed moves. We have no huge take on oil here, but the 55 area is rather big resistance to watch out for.
Oil volatility, OIV index, spiked massively during the move lower but has so far in January been falling hard. In our note from late November, “Will crashing oil bring out the Powell put”, we wrote:
Oil volatility is now in full explosion mode. This is pure panic and these levels won’t be sustainable long-term, but the rise in oil volatility is simply amazing.
The OIV index traded at 62 back then and is now back to 36, still elevated if you look on a longer-term chart, but definitely much lower than what we saw during those panic days late last year.
The below chart shows crude oil (white) versus the OIV (orange). Every bigger spike in oil volatility has been followed by a big bounce in oil. The 27% bounce in oil should start to calm down as we approach first bigger resistance areas.
Crude matters, irrespective if you trade it or not. Below chart shows the Eurostoxx 50 futures (white) versus crude (orange). Watch crude here closely, especially as the DXY index has been catching bids over past sessions.
Source: charts by Bloomberg