The Daily Prophet: Oil Tumbles, VIX Captivates and Greece Soars

Oil is back in the spotlight. Crude fell to its lowest level in more than a month, and it wouldn't take much more of a decline for prices to reach levels last seen in November. Oil has been on a roller-coaster ride in recent months, going from $54 a barrel in February, down to $47 in March, back up to almost $54 in April before falling back below $48 today.

The implications of oil's gyrations extend far beyond simply whether it's good or bad for consumers and producers. Lower energy prices are one reason why the markets are pricing in benign levels of inflation for the rest of the year. If that comes to pass, it could mean the Federal Reserve doesn't raise interest rates as much as it currently forecasts. Oil's latest drop comes amid concern that increasing U.S. crude production will offset efforts by OPEC and its allies to eliminate a global supply glut, according to Bloomberg News' Mark Shenk. Industry data showed American rigs targeting oil rose to the highest level in two years.

OPEC will meet again May 25 in Vienna to decide whether to extend the cuts through the second half of the year. Although Khalid Al-Falih, the Saudi minister of energy and industry, said last week that there seems to be a general consensus to do so, others are not so sure. “There’s growing skepticism about the effectiveness of the OPEC deal and whether they will be able to agree to an extension,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

WHAT TO MAKE OF A SUB-10 HANDLE FOR THE VIX
Investors and strategists are not quite sure what to make of the current low levels of volatility permeating most all markets. Some say these numbers reflect too much complacency. Others say they reflect the fact that central banks stand ready to pump even more money into the financial system at the first sign of trouble. Whatever the reason, the big question is what it means for markets going forward. To try and answer that, the strategists at Convergex took a look at CBOE Volatility Index, or VIX, which is also known as the "fear gauge." It dropped below 10 on Monday before closing the day just above that level. According to Convergex, there's really only three periods since 1990 when the VIX held below 10: December 1993, January 1994 and December 2006/January 2007. The firm concluded that a VIX below 10 signals the possibility of a pause in equity returns in the short term.