The massive plunge in the price of global oil prices has without doubt been one of the biggest triggers for the rising uncertainties in markets worldwide but over the past few months the prices have rallied and some traders and investors believe that the price would rise further in the days to come. Plenty of traders have taken out contracts that would be triggered only when the price of oil touches $100 or more a barrel and that is without doubt a clear indication that they feel that the pries would continue to rise in the near term.
According to a piece on Bloomberg, "The options deals, which brokers said bear the hallmarks of trades made by hedge funds, appear to be based on the belief that current low prices will generate a supply crunch as oil companies cut billions of dollars in spending on developing fields. The International Energy Agency forecasts that non-OPEC supply will suffer its biggest decline in more than two decades this year." The head of commodities research at Bank of America Merrill Lynch Francisco Blanch told Bloomberg,"The market faces a supply crunch in the next 24 months. Some hedge funds are betting that oil prices will need to rise sharply to bring demand down again -- that's why they are buying deep out-of-the-money call options." Another oil analyst named Amrita Sen added, "I do think we are setting up for a spike higher, but it's probably not till 2018, or maybe late 2017, because we are losing immense amounts of supply,"
The Bloomberg piece also stated, "Earlier this month, one investor bought more than 4 million barrels worth of call options at $110 and $80 a barrel for 2019 and 2020 in several transactions. In addition, another 800,000 barrels worth of $60 a barrel calls also changed hands. The deals are public because of new regulations introduced in the U.S. by the Dodd-Frank Act. The disclosures don't reveal the final buyer. Funds making the trades aren't necessarily expecting prices to jump as high as $100 to $150 a barrel, as the value of their call options will increase even if prices rise far less. These kind of options speculators are buying are often seen as lottery tickets because they offer an outside chance of very large returns."
