OPEC+ spurs curious oil move as prices soar but volatility dips

OPEC+ spurs curious oil move as prices soar but volatility dips

After a surprise OPEC+ cut prompted an 8 percent surge in crude prices, an unusual market signal is hinting the cartel may already be having some success in weeding out speculative short sellers.

Typically, Brent’s leap on Monday — its biggest intraday gain in a tumultuous 12 months — would have coincided with a surge in volatility. Instead, implied volatility, a gauge of the pace of price swings in any direction, barely moved and even declined in parts of the curve.

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The slump offers early indications that OPEC+’s hit at speculators may be starting to work. The muted reaction is likely due to expectations that output curbs would keep prices in a narrow band in the short term, with a drawdown in inventories balancing out selling pressures from the wider market and recessionary fears, traders said.

Lower volatility could also be a sign that financial players such as hedge funds and algorithm-driven trading firms may have had to take up more measured trading decisions after a recent rout, they added.

“The oil market needs more players on the field,” RBC analysts including Mike Tran and Helima Croft wrote in a report.