When traders hit their desks last Monday, Brent crude was trading closer to $70 a barrel. Their concerns largely centered on shaky supply-and-demand balances next year and additional OPEC+ barrels in the coming months.
But events in the Middle East have since sent prices into overdrive near $80 a barrel.
While crude futures posted their biggest gain in almost two years last week, other corners of the market have seen even bigger surges.
Options volumes on the global benchmark soared in particular, partly as traders scrambled to buy cover against the risk of a spike. Call option trading hit a record for both Brent and West Texas Intermediate last week.
Volatility and the value of bullish calls over bearish put options also ballooned, signaling that within just a few days a market whose consensus was bearish is now confronting the risk of a further price gains.
Bumper volumes in exchange-traded products are a sign that the big price moves are also attracting retail investors, although those market participants have been doing a mix of buying and selling.
Despite all those fluctuations, positioning data released Friday was surprisingly muted.
Across the five main oil futures, money managers posted net-bullish additions of close to 9,000 contracts last week, driven in part by the fact they increased bets against US crude. In some previous weeks, bullish and bearish swings have been 10 times that.
In the here and now, the market remains relatively robust. Prices are trading in a bullish backwardation structure, which indicates supplies are tight, and global inventories are low by historical standards.
That’s all adding fuel to oil’s rally.
Against the backdrop of a healthy market, significant financial flows and escalating conflicts, expect volatility to continue.
—Alex Longley, Bloomberg News
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