Traders ramp up bullish bets in U.S. oil options as prices soar

By David Gaffen and Stephanie Kelly

(Reuters) – Bulls have surged into the U.S. crude oil choices market in latest days as futures contact highs not seen in a decade, betting that crude’s rally will persist, in line with analysts and change knowledge.

The worldwide oil market was already tight even earlier than Russia invaded Ukraine final week, which has since despatched benchmark Brent and U.S. West Texas Intermediate (WTI) crude futures hovering over 15% to round 10- and 14-year highs, respectively.

The US and allies imposed sanctions on Russia that, whereas not explicitly focusing on Russia’s each day exports of 4 million to five million barrels, has severely hampered its means to promote its crude. Russia’s exports account for roughly 8% of the worldwide oil market, trailing solely Saudi Arabia.

Merchants see a possibility to purchase choices – bets on a course of a commodity’s value – and choices volumes have surged in latest weeks, and particularly for the reason that invasion on Feb. 24.

Between Jan. 19 and Feb. 9, the variety of U.S. crude choices contracts traded on CME averaged roughly 126,000 each day. Since then, the common has spiked to 178,000 each day, in line with change knowledge, together with the primary two days in March, when greater than 240,000 contracts traded.

Analysts stated exercise has been strongest in name choices – a wager on U.S. crude costs rising in coming weeks and months.

“You’ve bought buyers available in the market now wanting longer-term and placing in performs to attempt to see what’s taking place, and it’s stronger to the upside on larger costs,” stated JB Mackenzie, managing director at Charles Schwab Futures & Foreign exchange LLC. “The indication is for larger costs.”

Mackenzie famous that volumes for choices that expire each week have additionally elevated as the value of crude has risen.

Brent briefly touched almost $120 a barrel on Thursday, its highest since 2012, and WTI surpassed $116, a stage not seen since 2008, earlier than pulling again.

JP Morgan analysts stated on Thursday that Brent will common $110 a barrel within the second quarter.

Choices merchants may capitalize on volatility to revenue with out ever shopping for crude oil futures contracts. The market has swung wildly every day of late, boosting the Crude Oil Volatility Index (OVX), a measure of the market’s previous and anticipated swings, to 63, in contrast with a median of 40 over the previous 200 days.

WTI crude oil choices that expire in mid-April at a value of $120 a barrel – a wager that futures will surpass that value by that point – have been essentially the most popularly traded on Wednesday, in line with Robert Yawger, govt director of vitality futures at Mizuho.

He stated speculators have been piling into positions in WTI calls, though he characterised the WTI choices market as favored by producers who use put choices – contracts that defend in opposition to costs falling.

“The commercials use (U.S. crude) to hedge, nevertheless it’s gone the opposite approach right here as a result of the state of affairs is so uncontrolled,” Yawger stated.

(Reporting By David Gaffen and Stephanie Kelly; Modifying by Marguerita Choy)

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