Traders have been snapping up bullish oil options to hedge against the risk that U.S. sanctions will cause prices to spike.
About 231,000 Brent calls traded on Monday — the most since Jan. 10, the day the Biden Administration put sweeping sanctions on Russia’s oil industry. The latest surge comes as President Trump ramps up pressure on Iranian and Venezuelan oil exports with measures designed to disrupt and deter purchases from the two nations.
Monday trading was dominated by June US$100 calls, the third time in several weeks that options at that level have been active in what’s effectively a cheap bet on a price spike. Open interest in the option has ballooned to the equivalent of 100 million barrels of crude.
The purchase of such contracts “tells you the story of dueling themes — slow growth fears versus potential tightness in the market due to sanctions,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. Cheap calls such as those at US$100 are “defined loss bets.”
Benchmark crude futures have mostly traded in a band less than US$15 wide since September. While prices slumped below US$70 a barrel earlier this year, they have since recovered, as the threat of growth-sapping tariffs imposed by Trump is countered by the risk of disruptive sanctions on key producers and a flare-up of geopolitical tensions in the Middle East.
Oil options pricing has also taken a gently more optimistic tilt, with puts fetching the smallest premium over bullish calls in over a month. Prices could reach the US$85-to-US$90 range if U.S. restrictions on producer nations persist until the summer, or if OPEC+ exercises restraint when unwinding production curbs, according to Mukesh Sahdev, global head of commodity markets at Rystad Energy.
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Alex Longley and Mia Gindis, Bloomberg News
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