Investors are betting on an oil rally beyond $100. Should we all be hopeful or is it too early to say? Given the recent strength in price and signs of growing activity, it is hard not to be cautiously optimistic.
Call it a lottery ticket, but someone in the oil market has been busy making a bold bet by buying contracts that will be profitable if crude rises again at $ 100 a barrel. The $ 100 buyout option in December 2018 – a contract that gives you the right to purchase December 2018 futures at $ 100 a barrel – was the most traded contract on Tuesday in the entire ICE Brent market, which is the strongest signal of renewed optimism in oil.
The deal does not mean that the market believes that the value of $ 100 per barrel will materialize, but that with its bullish bets some are increasingly confident that the Organization of Petroleum Exporting Countries will be able to rebalance supply and demand
Options are likely to cost just over a million dollars, according to data compiled by Bloomberg. They will be worth several times that amount if the prices of futures contracts rise in the short term. It is also possible that the negotiations have been part of a broader coverage program.
The confidence in higher prices has returned since OPEC, Russia and other producers subscribed earlier this month their first agreement to reduce production in 15 years.
The International Energy Agency says that if producers meet their commitments, oil demand could exceed supply in the first half of next year, a significant change after three consecutive years of oversupply.