Crude Oil has had quite the steady bleed today. Today is the 3rd decline of 2% or more since QE3 was announced, and it’s added up to a steep selloff for oil in the past couple weeks. Here’s the 1 year chart:
Front month WTI crude oil is down more than $4 today, taking it to 2 month lows. Not surprisingly, we’ve implied volatility for crude oil move higher as the spot price has moved lower today. Here is the chart of 30 day implied volatility in USO (not a great proxy, but enough for our purposes here) since Jan 2012:
Crude oil has been one of the few assets where implied volatility has remained above its spring lows, and by a decent margin (more than 5 volatility points). Today’s spike is not exceptional when put in the context of the last 9 months, but it is certainly in contrast to equity, bond, or currency implied volatility markets, which are near 5 year lows as central bank liquidity does its job.
Why is oil such an outlier in this macro outlook? Why is liquidity making its way to every other market, but absent in the case of crude oil? One thesis I’ve had is that commodities that are difficult to store, like oil, have less appeal as inflationary protection. But the nature of the divergence is large enough that I still have more questions than answers here.