http://www.econbrowser.com/archives/2005/07/100_a_barrel_wh.html

This is a one standard deviation measure of how much prices are likely to change in a year. For shorter periods, we reduce it proportionately. For two months, 1/6 of a year, this is about 6%.

Now, that's one standard deviation. In general there is a 68% chance of staying within 1 SD, or plus or minus 6% price change. 68% of the time, prices will change by less than 6% in a 2 month period.

Two standard deviations would be twice as much, and correspond to 95%. 95% of the time, price will vary by no more than plus  or minus 12%.

Three standard deviations would be plus or minus 18%, and corresponds to 99%. 99% of the time, prices will change by no more than 18% in a two month period.

In this cases, prices fell from about 78 to 61. This is a drop of 22%, or more than a three standard deviation change, in fact almost four standard deviations. It should happen something like one in ten thousand times. Either oil price volatility has increased markedly (and I don't know that we see much evidence for that prior to the recent change) or else this was an extremely rare occurance.

Well, I suppose that's no surprise, we already knew it was rare, prices haven't fallen this much this fast in many years. This just shows how rare it is.

Now, one caveat - these statistics are based on a normal distribution. However financial prices are slightly "leptokurtic", a fancy word that just means "fat tailed". (If you like to live dangerously, try telling your girlfriend she's leptokurtic and say it's latin for beautiful.) What it means is that extreme moves are more likely than would be the case for a classical normal curve. Market psychology is more likely to lead to extremes than the kinds of physical processes that are often described by normal curves.

The bottom line is that this 22% drop in two months is in fact rare, but maybe not quite as rare as the calculations above would suggest. Four SD drops do happen in the market but they are certainly noteworthy.

And let me point out that Khebab's prediction graph shows us climbing back up to around 85 in November. An increase from 61 to 85 in two months would be 6.5 standard deviations! That would be even that much more remarkable than the drop we've already seen.