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Traders bet on oil at $ 100 as Iran imposes sanctions

NEW YORK / LONDON (Reuters) – Oil traders have prepared for US crude to rise to $ 100 a barrel by next year. A milestone that until recently was considered unthinkable by the record growth in US production and relatively flat global demand.

FILE PHOTO: Crude oil is poured from a bottle in this image June 1

, 2017. REUTERS / Thomas White / Illustration / File photo

But the imminent return of US sanctions against Iran and bottlenecks are holding US oil off The market has led to a rally that has brought benchmark oil prices to four-year highs.

While large producing nations describe supply as plentiful, hedge funds and speculators are increasingly skeptical of this argument and are betting that the market may continue to recover as sanctions on Iran's crude oil exports fall on November 4

. options market. The number of open positions on WTI Call Options CL1000L9 from $ 100 December 2019 – bets on futures that reach this price by the end of 2019 – has increased 30 percent to a record 31,000 lots last week, according to CME data.

"Over the last two weeks, there has been much more evidence that even some of the larger customers – India and China – will stop buying Iranian crude from November," said John Saucer, vice president of research and analysis for Mobius Risk Group.

As a result, he said, "These sanctions are probably much more effective than people even thought."

Total exports from Iran fell in September from 2.8 million to 2 million barrels per day (bpd) bpd in April, said the Institute of International Finance.

Estimates indicate how much Iranian exports could be impacted, from 500,000 bpd to 2 million bpd, and uncertainty about the impact could ultimately lead to price volatility in both directions.

Brent Crude, the international benchmark index, rose above $ 86 a barrel on Wednesday and West Texas Intermediate (WTI) hit $ 76 a barrel, both four-year highs.

Trump's decision to renew sanctions on Iran resulted in a major shift from the Organization of Petroleum Exporting Countries. After some 18 months of supply restraint, OPEC agreed to an increase in production.

In addition, Saudi Arabia and Russia have recently privately agreed to boost supply before reporting to other OPEC countries with the intention of helping US President Donald Trump, who has focused his anger on rising prices.

The oil markets expect pent-up demand from OPEC and Russia. Production in the US, which stands at 11.1 million barrels, can produce crude oil from the Middle East in Asian refineries. Iranian crudes, not replace. In addition, transportation bottlenecks limit US production.

"We continue to see an uptrend in price risk and do not rule out oil prices rising to $ 100 a barrel," said UBS analyst Giovanni Staunovo.

Open interest in $ 100 December 2018 Brent Call Options LCO10000L8, which expire at the end of October, currently has more than 50,000 lots, more than any other exercise price this month, according to InterContinental Exchange data.

(For a graph on 'traders bet on $ 100 oil, as Iran sanctions are approaching')

The implied volatility for very bullish Brent options, which after the resumption of sanctions on the 4th Expiring on November 10, this has very bearish options, suggesting an increased demand for such bullish bets.

This proliferation or imbalance has been the most ambitious since mid-July.

Open interest in $ 100 December 2018 WTI calls CL1000L8, which expires in mid-November, has risen to its highest in over four months at around 15,000 lots.

Many traders said that these $ 100 bets have long-term chances. Option contracts used to speculate on far-fetched results are usually cheap, and if crude lends rally, these positions will expire worthless. But even a short-term jump could make these options more expensive and sellers could sell them profitably.

Coverage of Devika Krishna Kumar in New York and Amanda Cooper in London; Edited by Cynthia Osterman

Our Standards: The Thomson Reuters Trust Principles.

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