OPEC cut boosts US hedging – but at lower oil prices

NEW YORK, Oct. 10 (Reuters) – The decision by the Organization of the Petroleum Exporting Countries and allies last week to cut oil production has sparked a wave of activity in the options market – but with more US gamblers opting for a bearish stance , data from CME Group showed.

OPEC+, as the group is known, decided on Wednesday to lower its target by 2 million barrels per day (bpd), including voluntary production cuts by Saudi Arabia and other countries. Oil futures have since risen more than 7% to a five-week high as the move was seen as a floor under the market.

However, the US oil options market tended to buy put options, which were used to bet on or protect against downside movements. There are several reasons why this could be happening, including concerns about weaker demand or because the low price of those options made it an opportune time for oil companies to buy to protect themselves from downward pressure.

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“I would classify buying puts as hedges,” said Bob Iaccino, chief market strategist and co-founder of Path Trading Partners. “Demand is still expected to be weak and weaken given the general economic picture…

Trading volumes for US crude futures puts and calls for delivery in November rose more than 40% to Wednesday, the day of Tuesday’s OPEC+ meeting, data from CME Group showed.

The volume in puts rose to 25,615 on Wednesday for the US crude futures contract in November, 10,922 more than during the previous session, CME Group said. In contrast, 19,473 call options – bets on a higher price – were bought that day.

“The put-to-call skew actually shifted in favor of the put after the OPEC decision,” said Bob Yawger, director of energy futures at Mizuho in New York.

On Thursday and Friday, put volumes were 15,579 and 25,771 respectively, while call volumes totaled 16,087 and 42,291, according to data from the CME Group.

Trade spiked on Friday after the White House suggested last week it was reviewing its relationship with Saudi Arabia and as it seeks ways to ease OPEC’s control over energy prices.

In the futures market, crude oil spreads widened Friday, with short-term contracts rising faster than later-date contracts. That signals renewed concerns about the current supply, which is more of a bullish indicator.

“There is a lot of supply uncertainty in 2023 and let’s not forget that there is also a lot of demand uncertainty given the macro outlook,” said Warren Patterson, head of commodities research at ING.

The spread between the international benchmark Brent which expired in December 2022 and December 2023 widened by more than 12% to over $13 a barrel on Friday, the highest since June, data from Refinitiv Eikon shows.

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Reporting by Stephanie Kelly, Florence Tan and Noah Browning; adaptation by David Gaffen and Marguerita Choy

Our Standards: The Thomson Reuters Trust Principles.

Stephanie Kelly

Thomson Reuters

A New York-based correspondent covering the US crude oil market and member of the energy team since 2018 for the oil and fuel markets and federal renewable fuel policies.

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