Crude Oil Makes $6, 7 Standard Deviation Move in Four Hours

After a steep run-up in crude oil (both Brent & WTI) crude fell from $103 to $96 dollars in only two hours, a 7 standard deviation move. Over the past week, Colonel Qaddafi's violence in Libya had driven up prices to as high as $120/barrel (brent) and $103/barrel (WTI), as oil consuming nations feared that Libya could take 1.6mm barrels per day or 2% of global supply offline. Libyan oil is also sweet (low sulfuric content) versus other fuels, and is very valuable to Europe and Japan, which do not have the refining capabilities we have in the United States. As a result, analysts fear that if this supply is kept online for a prolonged period of time, prices could rise and have significant inflationary impact. Nomura (which has numerous problems of its own, i.e. a lack of business) was bold enough to predict $220/barrel crude, adding oil to the fire. After that silly forecast, we at Leverage Academy have decided to never give the bank any vote of confidence again. Fear mongering...maybe that will help your prop desk, eh?

Soon after OPEC announced that it would increase output (Saudi) and the U.S. exclaimed that it would release strategic oil supplies, rumors arose that Qaddafi has been shot. Within minutes, oil fell two dollars and the S&P500 was up 15 points. Talk about volatility. Tomorrow, I am getting ready to invest in the oil VIX, as the 6 months of low volatility the market has experienced are long over.

http://leverageacademy.com/blog/2011/02/24/crude-o...