Is Iran right that oil is heading for $25? Are IEA and OPEC right that prices will rebound later this year? The headlines suggest that, whatever the case, oil isn’t ready to recover the enormous value it has lost in recent months. With upwards of a million barrel-per-day oversupply, traders are closely monitoring US rig count. Total SA this week joined other majors in cutting American shale oil production spending, but analysts warn that it will take time for production cuts to sop up the glut. The outlook has not been helped by the IMF’s dour global demand forecast this week.
What does that mean for VirtualOil’s fictitious energy production portfolio? Our charts capture how dramatically price declines spiked volatility late last year, but also that a correction today has less impact at the much lower base values. With oil prices simmering below $50, the actual price volatility delivered by the market has stabilized. Our Value-at-Risk backtesting vividly illustrates that the price came off hard but things are leveling out. Mark-to-Market has stabilized due to both the spot price movement and the value in our portfolio.
Chart: VirtualOil VaR Backtesting