Implied volatility has turned higher today after seeing a steady decline so far this year with no clear market direction and futures prices holding within an 80-86$/bbl range this month. The Brent option volatility call-put skew is drifting slightly closer towards parity as call volatility falls slightly slower than the put volatility.

• The 25 delta skew to the puts in the second month Brent contract has increased from -3.8% at the start of the month up to -2.5% today but still below the spike up to -1.5% following the Russian production cut announcement.
• The Brent Dec23 call-put skew has closed from around -5.3% near the end of Jan up to -4% and was as wide as -8.3% back in November. Many analysts are suggesting upside market risks in the second half of this year due to a China demand recovery and a possible end to central bank rate tightening.
• Moves in the WTI volatilities have been more muted than Brent with a less direct impact from any potential Russian output changes. WTI second month skew is around -3.6%.
• ATM option vols are down to around 36% from around 44% at the start of the year.

Source: Bloomberg