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‘Crazy’ bets on $200 oil invade the options market
Oil expert predicts barrel prices will hit $100 by end of 2021
Canary CEO Dan Eberhart argues natural gas supply growth is not keeping up with demand growth.
A roaring trade in bullish crude-oil options says the 2021 energy rally is far from over.
Traders once again are betting that the U.S. oil benchmark will surge above $100 a barrel, from a recent $82, as early as December. U.S. crude, known as West Texas Intermediate or WTI, is up 10% this month, and 70% this year, but it hasn’t hit $100 since the oil crash of 2014.
Wagers across the Atlantic are even more aggressive. Some traders are betting Brent crude, the global benchmark, will hit a record high of $200 a barrel by December 2022, according to data from provider QuikStrike. Options give investors the right to buy or sell at a stated price by a certain date. Traders typically use options to make directional bets or to hedge their portfolios.
OIL PRICES RISE ON TIGHT SUPPLY, SET FOR WEEKLY GAIN OF MORE THAN 2%
The bullish trading amounts to a gamble that supply-chain disruptions and regional shortages will keep pushing energy markets higher, despite a slowing global economic expansion and concerns that higher oil and natural-gas prices will crimp consumer spending. The wagers also show that investors drawn by the small upfront investments and potentially quick payoffs of options trades are piling into energy markets, echoing trades in the stock market this year.
"I haven’t seen crazy strikes like this in a long time," said Mark Benigno, co-director of energy trading at StoneX Group Inc., referring to the price in the underlying asset at which the options become exercisable. "The momentum and trend is higher."
Wall Street is watching whether the energy-price surge will dent third-quarter corporate earnings. Delta Air Lines Inc. on Wednesday warned investors that it expects higher fuel prices to undercut profit in the fourth quarter. In coming days, earnings from airlines including United Airlines Holdings Inc. and American Airlines Group Inc. will shed more light on the issue.