After The Stock Market, Now Oil ETF Volatility Eclipses That of Bitcoin


At the end of March, the stock market volatility surpassed that of Bitcoin as Wall Street saw more turbulence than the digital asset’s average volatility. The realized volatility of bitcoin took a big jump in March but it has already reverted.

Now, with the oil prices in free fall, the volatility of oil ETF has exceeded Bitcoin’s. Crypto data tracker, TradeBlock reported,

“USO Oil ETF volatility has surpassed that of bitcoin, as oil prices declined sharply in recent days. In the figure below we diagram price volatility over the past one year period between USO and TradeBlock’s XBX Bitcoin Index.”

Source: TradeBlock

US crude oil prices plunged this week that has renewed worries over the troubled shale oil industry. The price of Brent crude, the international oil benchmark, fell under $16 a barrel for the first time since 1999 as markets continue to struggle with oversupply while demand remains low due to coronavirus lockdown.

The market panic caused US oil prices to tumble into negative territory for the first time as with a lack of storage space, oil producers are paying customers to take their barrels from next month.

Restrictions on travel and the broader economy due to lockdown have caused demand to fall at its fastest rate in 25 years. Now, unless there was a “massive shock” such as oil well shutdowns, cutting millions of barrels from global production, the oil may even get cheaper.

“It’s not a panic. The move is completely rational,” said Howard Marks, co-founder of Oaktree Capital Management.

“The ultimate complication is that storing oil costs money, and storage facilities aren’t unlimited. Right now storage is scarce and thus expensive, so it’s not worth it to buy oil today and store it. The cost of storing exceeds the value today; thus the price is negative.”

These losses came despite the OPEC and its oil producing allies finalizing a historic agreement earlier this month to cut production.

US President Donald Trump said earlier this week that he would consider preventing incoming Saudi Arabian oil shipments and top up the country's emergency fuel storage of petroleum.

Now that the storage tankers are full, May won’t be any different. “Yes, eventually demand will gradually pick up again. However, until that happens, watching producers continue to pump oil out of the ground is ludicrous,” said analyst Mati Greenspan in his daily newsletter Quantum Economics.

However, if oil producers start shutting down wells, it can physically damage reservoirs and threaten the future prospect of reviving the output.

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