Traders Bet on $100 Oil at Record Pace

Traders flocked to the crude oil options market last week, trading record numbers of call options that Brent would hit $100 per barrel in the coming months, data compiled by Bloomberg showed on Monday.

As tensions in the Middle East escalated earlier this month, traders moved to the options market, betting on higher oil prices as a hedge against spiking futures prices. The call options give traders the right—but not the obligation—to buy assets at a certain price, the so-called strike price, by a certain date.   

Days before the Iranian attack against Israel over the weekend, traders traded last week more than 1 million call options on Brent crude, focused on the $95 and $100 strikes, Bloomberg’s data showed.

In Brent Crude, call options at $100 and $110 per barrel have been the most popular options held by traders over the next 12 months, per data from ICE Futures Europe compiled by Bloomberg.

The front-month futures Brent contract fell below $90 per barrel on Monday, despite Iran’s retaliatory strike on Israel that the latter said had only done limited damage.

Risks have risen in the Middle East over the past weeks, and despite the muted oil price response to this weekend’s attack with drones from Iran toward Israel, call options are likely to be heavily traded in the coming days and weeks, analysts say.

The bullish call options have been trading at high premiums over the bearish put options in the options market in recent weeks—another sign that the market seems bullish on oil and may have already priced in some escalation in the Middle East.  

Short of actual disruptions to oil supply, Goldman Sachs analysts have brushed off the latest events between Iran and Israel as a bullish factor for oil prices, citing potential hedging by producers.

“Any rise in oil prices on higher geopolitical risks may be dampened by oil producers deciding to hedge their price risks and sell forward their production,” the bank said as quoted by FXStreet.

By Tsvetana Paraskova for Oilprice.com

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