Oil Price Trends | Supply Disruptions, Options Market Bets on Testing $150

Middle East fighting has led to the limited reopening of the Strait of Hormuz, keeping crude oil supply continuously obstructed. Traders have rushed to buy crude oil options, betting that Brent crude will surge to a historic high of at least $150 per barrel by the end of April.

Since Feb. 28, when the U.S. and Israel went to war with Iran and effectively disrupted oil shipments through the Strait of Hormuz, Brent crude has jumped by nearly 50%. Brent crude’s May contract LCOc1 is currently around $107 per barrel.

Options trading in the derivatives market shows that over the past few weeks, the volume of trades betting that oil will hit at least $150 per barrel by the end of April has grown 10-fold, reflecting that traders are gearing up for near-term price volatility. This price level would surpass the $147-per-barrel record set in 2008.

Data from the Intercontinental Exchange (ICE) also shows that options expiring at the end of April—granting the holder the right to buy June Brent crude oil futures at a $150 price (i.e., call options)—have seen open interest grow by nearly 10 times from a month earlier.

Analysts say these call options clearly indicate that investors are assessing the tail risks that the current conflict could bring, and are increasingly trying to manage those risks. A $150-per-barrel oil price will undoubtedly hit demand, but as long as crude oil in the Gulf region cannot be shipped out, there is a risk of severe shortages.

Despite the surge in market bets on a $150 oil price, the largest amount of open positions is still concentrated in options with a strike price of $100, with more than 60,000 outstanding contracts.