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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
OIL OPTIONS
Oil price volatility is gradually falling but both supply and demand uncertainty remain.
- Implied ATM Brent volatility is approaching levels seen at the start of this year before the Ukraine war. Current ATM implied vol is about 43% compared to levels at or just below 40% in Jan and Feb. Implied vol peaked at nearly 92% in March.
- With limited spare capacity, prices are likely to remain sensitive to any supply disruptions. Russian exports are forecast to fall further as the EU oil ban comes into effect. Saudi Arabia and UAE are the only OPEC nations with significant spare capacity, but they are unlikely to independently increase supplies against the current OPEC+ agreement. The US have also not yet shown signs of significantly increasing production despite rising rig counts over the last year.
- Any continuation to Chinese lockdown restrictions and concerns regarding global growth could impact prices to the downside.
- The current volatility skew is relatively flat with puts at a slightly premium throughout 2022. There remains a significant skew for low delta options on both the upside and downside highlighting some of the potential uncertainty still in the market.
- The graph below shows the implied volatility and historic 30 day volatility of front month Brent:
Source: Bloomberg
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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