Crude Oil (USO, OIL) Breaks Key Support, Heading ‘Due South”

Crude Oil (USO, OIL) Breaks Key Support, Heading ‘Due South”

Crude Oil (USO, OIL) Breaks Key Support, Heading ‘Due South”

$USO, $OIL

Crude Oil’s clear break through Key support at 50 bbl has set the options market On Fire.

A record number of options contracts, the equivalent to more than 800-M bbl of Crude Oil changed hands Thursday, according to the exchange data.

The tally includes trading for Brent Crude and WTI Crude Oil in London and New York and shows a surge in cheap bets that the former will reach 70 bbl by September.

The trading, which allows investors to protect themselves or profit from price swings, takes place as the market emerges from its least volatile period in years.

Since 30 November, when the Organization of Petroleum Exporting Countries (OPEC) agreed to curb output for the 1st  months of this year, prices have hung above 50 a barrel. That frame ended as WTI Crude Oil fell to its lowest mark since the OPEC deal, due to rising US stockpiles that threaten to prolong the global glut.

The world is awash in Crude Oil.

In the long run, either OPEC will cut or demand will pick up a bit of this extra supply. Traders are dancing to the volatility.

Thursday’s activity marks the 2nd time recently that options trading in the the Crude Oil market has soared.

In late November, investors rushed to make bets that prices would rise as OPEC hammered out its deal to cut production. After both Brent Crude and WTI Crude Oil this week fell the most in more than a year, traders sought to profit from market volatility.

Options trading reached its 2nd-busiest day for both Brent Crude Oil on the ICE Futures Europe exchange in London and WTI Crude Oil on CME Group Inc.’s NYMEX exchange in New York.

The increase occurred as Brent Crude’s volatility rebounded to a 2-month high and the Bearish bias rose, and 10 WTI Crude Oil options contracts saw more than 10,000 lots traded Thursday, with 5 profiting from higher prices and 5 from lower prices.

For Brent Crude, September contracts were among the most active, with record volumes on bets that prices would hit 60 and 70 bbl. The move toward longer-dated contracts comes as investors seek cheap protection against price swings after the next OPEC meeting in Vienna on 25 May.

While the number of contracts betting on 70 bbl Brent Crude by September rose by about 10,000 lots Thursday, other Bullish bets declined.

Brent Crude’s 60 Calls for both June and July saw open interest slip in spite of bumper trading.

Traders are likely adjusting their expectations about when a re-balancing will arrive, as the Bullish structures may have moved their maturities longer, that would mean they are starting to feel less confident about a near-term Bullish story.

If OPEC compliance stays high and global demand stays pretty strong, the re-balancing is going to happen. If not Crude Oil heads due South.

HeffX-LTN Analysis for USO: Overall Short Intermediate Long
Bearish (-0.33) Neutral (-0.23) Bearish (-0.29) Bearish (-0.47)
HeffX-LTN Analysis for OIL: Overall Short Intermediate Long
Bearish (-0.37) Neutral (-0.15) Very Bearish (-0.50) Bearish (-0.4

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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