Why Crude Oil Options Are Soaring
Crude Oil Options Skyrocket as Markets Still Unable to Read the Middle East
– Open interest held in ICE Brent options surpassed the threshold of 4 million contracts for the first time on record, the equivalent of 4 billion barrels, as investors seek to hedge their geopolitical exposure.
– The widespread expectation that Israel would seek to retaliate vis-à-vis Iran around the time of the US presidential elections, potentially leading to a sudden price spike should international waterways be restricted afterward.
– The fundamentals of the oil markets in 2025 wouldn’t justify an increase in bullish positions in Brent futures, but options, generally perceived as a hedging mechanism for volatile periods, serve that purpose perfectly.
– Brent call options for the front months of December 2024 and January 2025 now fetch the biggest premium to bearish puts since March 2022, the first month after Russia invaded Ukraine.
Spectre of Higher Chinese Exports Depress Asian Diesel Cracks
– Expectations of strong middle distillate exports out of China are weighing on diesel and jet fuel across Asia, as regionally weak industrial demand and higher production from South Korea add to the margin pressure.
– Chinese exports of diesel have been quite low in 2024 so far, averaging only 210,000 b/d and widely outperformed by jet fuel which saw its exports rise to an all-time high of 300,000 b/d.
– Diesel cracks in northeast China have dipped