The EIA released its monthly energy outlook yesterday which includes a price forecast for 2016 and 2017… Using futures and options markets they also calculate a market range (using a 95% confidence interval) of $25 to $56 for April delivery (based on April futures at $37)… The wide range shows how very difficult it is to predict the price of oil even a few months away… And, we continue to look at markets through the lens of models assuming normality of future price movement despite learning time after time that there is no “new normal”; there was never an “old normal” (repeat after me!)… By the way, my rough calculation from yesterday’s settlements show this April range to be $19 to $55 (mine use the skewed vols)… This strangle settled at 19 cents…
This is from the EIA http://www.eia.gov/forecasts/steo/ :
“The Short-Term Energy Outlook (STEO) released on January 12, which is the first STEO to include projections for 2017, forecasts Brent crude oil prices will average $40 per barrel (b) in 2016 and $50/b in 2017. West Texas Intermediate (WTI) crude oil prices are expected to be $2/b lower than Brent in 2016 and $3/b lower than Brent in 2017.
EIA recognizes that there is still high uncertainty in the crude oil price outlook. For example, EIA’s forecast for the average WTI price in April 2016 is $37/b, while the market expects WTI prices to range from $25/b to $56/b (at the 95% confidence interval) based on the recent prices of futures and options contracts for April 2016 delivery.”
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