Oil prices have become much less volatile in recent weeks as the record short position previously established by hedge funds has been squared up and prices return to a level at which many U.S. shale wells are profitable. Realized volatility, a technical measure of the day to day variability in prices, has fallen to an annualized rate of just 24 percent, down by more than half from its peak of 60 percent in late February. Volatility in front-month Brent futures has dropped to its lowest level for almost five months and is now roughly in line with the very long-run average of about 27 percent. After displaying its wild side, the oil market has reverted to a milder state, to use terms employed by Benoit Mandelbrot to describe erratic volatility in commodity markets (“The (mis)behavior of markets” 2004). The reduction in volatility reflects a number of factors of […]