Options Data Says The Price Of Oil Is Primed To Plunge

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A look at options data indicates traders think the price of oil is going to fall in the coming months:

Bloomberg: Options granting the right to sell, or put, oil in December below current prices have a so-called implied volatility of 54.3 per cent, compared with 43.3 per cent for the equivalent options to buy, or call, data from the New York Mercantile Exchange show.

The premium for December and other put options shows “the market is worried,” said Harry Tchilinguirian, a senior oil analyst at BNP Paribas SA in London. “If puts are pricing higher than calls, we are looking at a situation where the market is more averse to the downside and is looking for more compensation” for the option, he said.

…The Nymex’s most popular option is the right to sell December crude at $60 a barrel, with 69,244 contracts outstanding, exchange data show. The right to sell at $50 a barrel is the second most widely held.

The fear is being driven by stockpile increases. Stephen Schork is quoted as saying, “”It was a very weak summer. We came out with more gasoline than we started.” Oil stockpiles in developed countries are up by 4.6% on a year over year basis. U.S. stockpiles are at their highest since 1983, and even China seems to be overstocked.

When the market sees oil demand dip on the basis of over supply, the price is expected to drop as well.

Saudi Oil Minister Ali Naimi disagrees. Last week he said, “Stocks have no bearing on price. You must realise there is a fundamental change in the market.”

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