Oil traders raced to desert complex, bearish options trades in U.S. crude oil this week after the market quickly moved to reflect tighter supplies at the vital Oklahoma storage hub over the past month, resulting in a surge of activity in a usually illiquid corner of the market.
Due to new pipelines flowing out of the Permian basin, the most important U.S. shale field, to the Gulf Coast, shipments to Cushing, Oklahoma, the delivery point for U.S. crude futures, are expected to dry up. Inventories have already fallen for seven consecutive weeks at the vital storage center – at a faster-than-anticipated rate, traders said.
Trading in U.S. crude spreads, a proxy for expected stock in Cushing, has been disturbed, leaving traders scrambling to make sure they are not caught on the wrong aspect of the rally. That volatility also extended to the calendar spread options market, which is generally quiet.
The spread between U.S. crude oil futures for October delivery compared to November has whipsawed, rising to a 48 cent-premium per barrel this week, highest since May, after trading at a discount three weeks earlier. That is a sign that supplies are expected to tighten quickly by October.
Traders further have been forced to depart bearish calendar-spread options (CSOs) into the fourth quarter, market sources said, due to the signs that Cushing supplies are expected to be stringent.
Volumes in CSOs have surged, based on data from CME Group’s daily bulletin and brokers concluding the deals, with about 12,500 lots of put options on the October-November U.S. crude oil spread rested on Monday.
Overall open interest in U.S. CSOs has risen to about 202,000 tons as of Aug. 13 from 174,000 lots late in July, based on CFTC data.