© Reuters Empty orders have increased significantly!Recession expectations rise, crude oil markets take the lead in hedging
News from the Financial Associated Press on March 17 (edited by Ma Lan)The rain is about to come, and the traders in the crude oil market are always the first to act.
Oil producers, banks and hedge funds have all increased their purchases of put options to hedge against possible losses, according to market sources.
Meanwhile, Brent has fallen to a near one-year low. As of press time, the front-month Brent crude futures price was at $75.36, a new low since December 2021, and WTI crude was quoted at $69, also the lowest since December 2021.
The main reason for the recent decline is the failure of Silicon Valley Bank last Friday, and the subsequent regulatory closure of Signature Bank has further deepened people’s concerns about the banking crisis and triggered market speculation about a global economic recession. This also makes the crude oil market tend to be bearish on crude oil, because the industrial sector will reduce fuel demand in a recession.
Bearish options surge Price Futures Group analyst Phil Flynn said there are concerns that oil prices will go lower if the global economy slumps. Now because investors don’t know how the banking crisis will play out, they can only reduce risk first.
Put options on the U.S. crude futures contract for April delivery rose 30% from the previous session to 30,594 on Friday, according to data from CME Group. From last Friday to this Wednesday, the volume of put options increased further to 50,225 lots.
That compares with a volume of 36,394 call options in Wednesday’s market. In the open interest of U.S. crude oil futures options, the ratio of put options to call options has reached the highest level since August 2022.
Rebecca Babin, senior energy trader at CIBC Private Wealth US, said investors could see a further rise in volatility given the crude oil price action and poor sentiment in the market.
However, if oil prices fall further, put options will be in greater demand, pushing up the cost of shorting. It also makes it expensive to buy put options to protect against lower crude prices.
The discount of the US WTI crude oil futures far-month contract to the near-month contract has tightened, indicating that market participants are not optimistic about the short-term demand for oil.
The premium for the front-month U.S. WTI crude oil contract over the half-year contract has narrowed to 29 cents a barrel on Wednesday, the lowest since Feb. 7, according to Refinitiv Eikon data. The premium for the front-month Brent crude futures contract, the international benchmark, narrowed to $1.31 a barrel, the lowest since Jan. 31.