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Free AccessBrent volatility drifting lower
Despite high intraday volatility Brent crude has been trading in the wide 102$/bbl to 113$/bbl range for over a month since mid Apr. As a result, front month ATM implied volatility as drifted below 50% for only the second time since Feb and the start of the Ukraine war.
- With no clear direction the market is trying to balance economic growth concerns and Chinese demand reduction against supply disruption from Russia and struggling quota compliance from OPEC+ members. The EU have still not managed to agree sanctions on Russia oil with the suggestion from US to impose tariffs instead.
- The volatility skew also suggests an uncertain directional view with put and call volatilities close. In Jul puts are at a slight 2% premium but late in the year by Dec22 calls are at a 1% premium.
- Jul22 Brent option expiry is next week on Thurs 26th May.
- The graph below show the Brent rolling front month ATM implied volatility and the 30 day historic volatility:
Source: Bloomberg
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