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U.S. ENERGY INFORMATION ADMINISTRATION EIA Measures Price Uncertainty in Oil and Natural Gas Markets The U.S. Energy Information Administration (EIA) released today the first product under the Energy and Financial Markets Initiative launched in September. "Starting this month, EIA is including a quantitative measure of price uncertainty based on options market transactions in our monthly Short-Term Energy Outlook,” said EIA Administrator Richard Newell. "The new measure characterizes the degree of uncertainty in futures market prices, and provides perspective on the range of possible energy prices.” EIA quantifies this uncertainty using “implied volatilities” derived from the NYMEX options markets to construct confidence intervals around the NYMEX crude oil futures prices. Implied volatility is synonymous with the standard deviation of expected returns, and is calculated from traded option prices using the Black commodity option pricing model (see Short-Term Energy Outlook Supplement: Energy Price Volatility and Forecast Uncertainty). During the 5 days ending October 1, 2009, NYMEX futures market participants were pricing WTI delivered to Cushing, OK, in December 2009 at an average of $68 per barrel. The 95-percent confidence interval for the December 2009 futures contract ranges between $48 per barrel and $96 per barrel, a $48 per barrel difference. There is about a 5-percent chance prices will fall outside of the 95-percent confidence interval. For the 5 days ending October 1, 2009, natural gas futures on the NYMEX were trading at $5.64 per million Btu (MMBtu) for gas delivered to Henry Hub, LA, during December 2009. The 95-percent confidence interval around this price has a lower limit of $3.70 and an upper limit of $8.60, a difference of $4.90 per MMBtu. Energy Price Volatility and Forecast Uncertainty can be found at:
EIA-2009-13 Contact:
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