Large companies that use a lot of fuel are buying contracts to protect themselves from future price increases. They are doing this because the cost of Brent, a type of oil, has gone down to less than $70 per barrel.
These companies, like airlines and shipping businesses, usually buy special agreements called derivatives to protect themselves from rising oil prices. By buying these agreements, they can make money if oil prices go up, which helps them pay for more expensive fuel.
Last week, the number of these agreements that swap dealers, who are often seen as representing big fuel users, bought went up by almost 50,000. This is the third-largest increase ever recorded. The swap dealers in Europe also bought a lot of these agreements, reaching the highest level since 2020.
The price of Brent oil dropped below $70 per barrel last week because people are worried about how much oil the world needs. The oil group OPEC also said that they think oil demand will grow less than they thought before.
On September 10, both Brent and another type of oil called WTI had their lowest prices since December 2021. This made many buyers come in, as seen in the special oil agreements that are traded without using an exchange.
At the same time, some investment groups sold a lot of futures and options, which are agreements to buy or sell something in the future. For the first time since 2011, these groups had more agreements to sell oil than to buy it. They are worried that the world doesn’t need as much oil as they thought.
The price of oil went down a lot in September because of weak economic signs from China and lower profits from making oil into fuel. This made people think oil prices would go down more.
However, this week, some investment groups started buying oil again because there are problems with oil supplies in Libya and because a big storm called Hurricane Francine hurt oil production in the United States.
The price of oil went up a bit this week because a lot of oil production in the Gulf of Mexico is still stopped. People also think that the group in charge of interest rates, the Fed, might lower them a lot by the end of the year, which could help the oil market.
What the Fed does with interest rates, how much oil China and other big countries need, and what OPEC+ decides will keep affecting the oil market and how big companies decide to protect themselves from price changes.