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Market eyes the $100 a barrel oil wager

Brent $90 and $100 calls among most held options contracts. Move comes as political risks swirl over the oil market.

By Alex Longley

Petroleumworld 24 05 2018

Some options traders are betting on $100 oil again.

Whether it's the specter of sanctions on Iran, Venezuela's output plunge, or a momentum play on the back of the past year's 46 percent surge in Brent, there are now the equivalent of about 93 million barrels wagering on the global benchmark hitting $100 at some point in the next 12 months.

While triple-digit oil may be a way off in practice, talk that prices could top that barrier over the next 12 months is gaining traction. Bank of America said earlier this month that oil could rally to $100 by the middle of next year, a view echoed by veteran developing-nation investor Mark Mobius. Meanwhile Pierre Andurand , one of the most prominent hedge fund managers in the oil market, recently said that $300 a barrel was “not impossible”. Among the rationale behind those views are shrinking global oil stockpiles and more hawkish U.S. foreign policy.

“You've seen geopolitical events that are there around Venezuela, around Iran that will take supply off the market and the demand environment so far is holding up,” said Harry Tchilinguirian head of commodity-markets strategy at BNP Paribas. “What you certainly have is this interest in out-of-the-money calls on the speculative side, or further down the curve from consumers.”

The most held Brent crude oil options contract remains the $80 call, after a spate of buying ahead of President Trump's decision to renew sanctions on Iran earlier in May. That's followed by $100 and $90 calls, both of which have seen their holdings increase significantly over the past month, while the number of $80 calls has declined.

Growth in bullishness in the more obscure corners of the oil market hasn't been confined to options. Crude oil futures as far as five years forward have been surging in price in recent weeks. Prices for December 2020 neared $70 a barrel this week, the highest level since 2015, and a signal that the “lower for longer” price mantra may be coming to an end.

In the meantime, the short-term wildcards for crude are growing. Traders are still awaiting clarity over President Trump's decision to reimpose sanctions on Iran, while the U.S. also took new measures against Venezuela this week. OPEC will also decide whether to prolong its oil output cuts at a meeting in Vienna next month.


Twitter: @petroleumworld1

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Story by Alex Longley from Bloomberg. 05 23 2018

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