Oil traders have been purchasing a record number of options contracts for Brent Crude this month. This surge comes as fears of war in the Middle East escalate, prompting market participants to seek protection against potential price spikes.
Oil options are contracts that allow holders to buy or sell oil at a predetermined price if it exceeds that price within a specified timeframe.
Data from Bloomberg shows that the number of open options contracts for Brent has increased by more than 25% in October alone. For the first time, this week’s total surpassed 4 million contracts, equivalent to 4 billion barrels.
The risks of war intensified following Iran’s missile attack on Israel earlier this month, and markets are now awaiting Israel’s response. Oil prices have fluctuated, driven by concerns over a wider regional conflict and weaker global oil demand.
Reports indicate that Israel may target some of Iran’s energy and oil infrastructure in retaliation for the missile attack.
Unlike previous geopolitical tensions, oil prices have remained relatively stable this year following Hamas’s attack on Israel in October 2023, which sparked the current crisis. This stability is attributed to OPEC‘s efforts to cut oil production to stabilize the market, as the organization maintains an estimated 5 million barrels per day (bpd) of spare production capacity.
Analysts suggest that OPEC, particularly its Middle Eastern producers like Saudi Arabia and the United Arab Emirates (UAE), possesses sufficient spare capacity to compensate for potential supply losses from Iran.
However, if the conflict escalates and Iranian proxies target oil infrastructure in neighboring countries, or if Iran attempts to block oil traffic in the Strait of Hormuz, analysts warn that oil prices could surge to triple-digit levels and reach record highs.
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