Gulf News reported that the prospect of oil topping USD 150 per barrel within a year has become the biggest bet in the options market as the US and Europe work to limit Iran's crude sales.
The number of outstanding calls to buy oil at USD 150 next December has jumped 29% since a November 8 United Nations inspectors' report on Iran's nuclear program to more than any other option on the New York Mercantile Exchange. The contracts equate to about 38 million barrels of oil or 43% of daily global demand based on data from the US Energy Department.
Mr Fred Rigolini VP of Paramount Options in New York "People are taking a long shot and buying cheap insurance. They'll probably play this through the spring."
Mr Ramin Mehmanparast an Iranian foreign ministry spokesman said that the price of the USD 150 calls has risen 9.2% to USD 1.30 since the day before the UN report was published, outpacing the 5.2% gain in oil futures. Crude will surpass USD 250 per barrel if nations threaten to ban purchases from Iran.
Open interest, the number of contracts not closed or delivered, in options to buy crude at USD 150 next December increased 11% on November 22 alone as the US, UK and Canada imposed new sanctions on Iran's financial system including measures that may make it more difficult for buyers to pay for Iranian crude.
Data from the Nymex showed that outstanding options numbered 38,023 on December 6th 2011. The second largest open interest was 35,453 puts or bets to sell oil for USD 80 in December 2012.
Mr Seth M Kleinman European head of energy research at Citigroup in London said that "The rise in open interest in deep out of the money calls reflects investors looking to either profit from an oil price spike or to protect the rest of their portfolio if things do take a turn for the worse."
Mr Mark Dubowitz director of the Iran Energy Project at the Foundation for Defense of Democracies a European ban on Iran's exports still may not boost prices because the country's remaining trading partners including China and India would have increased power to negotiate discounts, depriving the country of cash while leaving world supplies little changed.
The US and Europe are targeting Iran's oil industry in an effort to deprive President Mr Mahmoud Ahmadinejad's government of cash to sustain its nuclear program. The International Atomic Energy Agency said that Iran continued working on nuclear weapons at least until last year including efforts to shrink a Pakistani warhead design to fit atop its ballistic missiles.
Mr John Kilduff a partner at Again Capital said that "There's a lot going on that has justifiably amped up the security premium. That's why you see the interest in the USD 150 strikes on these call options."
(Sourced from Gulf News)
