OEF Rapid Review Articles
Oil investors are buying contracts that will only pay out if crude oil rises well above US$100 a barrel over the next four years – a clear sign some believe today’s bust is sowing the seeds of the next boom. The options deals, which brokers said bear the hallmarks of trades made by hedge funds, appear to be based on the belief that current low prices will generate a supply crunch as oil companies cut billions of dollars in spending on developing fields. Over the last month, investors have bought call options, giving the right to buy at a predetermined price and time, for late 2018, 2019 and 2020 at strike prices of US$80, US$100 and US$110 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing Corp. Even before the most recent flurry, some investors had already built super-bullish positions. The largest number of outstanding contracts, or open interest, across both bullish and bearish options contracts for December 2018 is for calls at US$125 a barrel. For December 2020, it’s for US$150 calls. The options deals suggest sentiment is starting to shift from worry about oversupply to concern about shortages as demand begins to outstrip production – the traditional boom and bust commodities cycle. “Large spending cuts on the back of low oil prices will lead to the demand and supply gap widening from 2018 onwards, if not earlier,” Abhishek Deshpande, oil analyst at Natixis SA in London, said. “This is likely to push oil prices up as early as 2017,” he added.
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Oil At US$100? Hedge Funds Bet On Supply Crunch
LINK TO THE SOURCE ARTICLE:
Oil At US$100? Hedge Funds Bet On Supply Crunch