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Oil Faces Rockiest Start to a Month Since 2022 as War Risk Soars

(Bloomberg)

(Bloomberg) -- Oil prices have seen their most volatile start to a month in almost two years as the spiraling tensions between Iran and Israel spur a bumper bout of volatility. 

So far in October, Brent crude has traded in an average daily range of $3.73, the biggest for the same period in any month since December 2022, according to data compiled by Bloomberg. 

Prices have gyrated mainly on the risk that Israel’s retaliation for a missile attack by Iran will involve energy infrastructure in a region that accounts for a third of the world’s oil output. But there have also been macro-economic drivers, including a blowout US jobs report late last week followed by a strong market reaction to stimulus from China. 

“The high level of volatility can lead to false positives in terms of buy/sell signals — making for a very challenging environment if you want to initiate directional trades,” said Harry Tchilinguirian, group head of research at Onyx Capital Group.

The sharp swings have also coincided with bumper activity in the oil options market. On average close to 250 million barrels of bullish calls have changed hands in each of the last 10 days, a record, as traders seek to protect against both higher levels of volatility and a price spike. 

Those volumes have seen significant additions of call-option open interest at $100 for both West Texas Intermediate and Brent. 

“Where do we see the positioning in oil, it’s in the options, which is part of the reasons why we see big moves,” said Jeff Currie, chief strategy officer for energy pathways at Carlyle Group. “I think it goes to that short-term, near-term myopic approach of trading oil.” 

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