Oil market sees surge in $100 call options amid Middle East tension
On Wednesday, interest in call options in the oil market significantly increased. These options will be profitable if crude oil prices reach $100 per barrel, indicating growing investor concerns over potential supply disruptions in the Middle East.
Oil prices are rising, deepening a trend that began at the week’s start. Analysts quoted by Bloomberg interpret this as an attempt to hedge against the risk of sharp price increases in the near future.
By 11:20 AM Eastern Time, the trading volume of December Brent crude options with a strike price of $100 reached the equivalent of almost 27 million barrels. Simultaneously, options on U.S. WTI crude with similar parameters reached a volume equivalent to over 7 million barrels. According to market experts, these transactions included both buying and selling options. This marks a return to the situation in April when tensions in the Middle East raised concerns about a sharp rise in oil prices.
$100 per barrel on the horizon?
Scott Shelton, an energy specialist at TP ICAP Group Plc, is certain that investors are taking rising oil prices more seriously. "I believe that options with a $100 price function somewhat like insurance policies for investors who hope they will become worthless." Shelton emphasizes that the probability of a significant production drop is low, yet it is difficult to make clear predictions in the context of geopolitics. He also adds that the fundamental supply and demand balances remain generally weak.
On Tuesday, Brent crude oil experienced the largest daily price volatility since March of last year. This was a direct reaction to Iran's missile attack on Israel and Tel Aviv's announcement of retaliation. These events caused significant turmoil in the oil market, which in previous weeks was characterized by many short positions.
Rise in option value and market outlook
The growing interest in bullish call options has sharply increased the value of these contracts. The value of WTI and Brent crude options with a $100 strike price reached the highest level since mid-August. However, analysts warn that this bullish position in the options market contrasts with fundamental market conditions, which indicate a probable oversupply in the coming months.
The current situation in the oil market reflects the complexity of factors affecting oil prices. On one hand, investors are hedging against potential supply shocks resulting from geopolitical tensions. On the other hand, fundamental market indicators suggest the possibility of oversupply in the future. This dichotomy highlights the challenges faced by oil market participants in the current unstable global environment.
