So, we had the OPEC weekend, but oil prices remain extremely dull. Oil is one of the best performing assets YTD, but recent weeks we have had somewhat more of a grinding higher price action. Crude futures are very close to making a “light” golden cross as the 50-day average is about to cross the 100 day. The big resistance is at 60 USD.
Global volatilities across assets have imploded since the Christmas “panic”. Oil volatility is no different. Implied vols of the Oil ETF, USO US, continues the one-way traffic lower. The prudent investor should look at cheap optionality for hedging, replacing or speculating.
While oil has been grinding higher, the energy ETF, XLE US, remains below highs we saw in February.
The spread between the XLE and the USO has been widening all year. We are not overly “confident” on a mean reversion trade in this spread, but would more look at possible pullback risks in both, as despite the run up in oil, momentum has been fading small and given the fact OPEC was more or less a non-event, investors might decide to sell the “non” news.
Source, charts by Bloomberg