Recent options data indicates that investors are betting on further increases in oil prices due to escalating hostilities between Israel and Iran, which could threaten Middle Eastern energy infrastructure. For the first time since mid-August, call options have surpassed put options in terms of premium. Brent crude call options have hit a record high, driven largely by active contracts priced at $100 per barrel or more.
Such a premium on call options over put options is rare in the oil market, although it has occurred several times since the outbreak of conflicts between Israel and Hamas last year. Citibank analysts, including Francesco Martoccia, report that a significant impact on Iran's export capabilities by Israel could reduce market supply by 1.5 million barrels per day. A smaller disruption targeting downstream assets could cut production by 300,000 to 450,000 barrels per day.
These developments add uncertainty to the oil market, with the ultimate impact on global oil balance and prices depending on Israel's response and any potential damage to Iran's oil industry. The options market's behavior corresponds with gains in futures contracts, as a full-scale war in the Middle East could disrupt oil production and transportation, pushing prices higher.
Brent crude prices have risen by about 4% since Iran launched over 100 ballistic missiles at Israel earlier this week, while a measure of implied volatility for global oil price benchmarks has reached its highest level in nearly a year. Oil prices have climbed for the third consecutive day, with Brent crude surpassing $75 per barrel and West Texas Intermediate (WTI) crude exceeding $71.
On Wednesday, over 372,000 Brent crude call options changed hands, compared to the average daily volume of about 129,000 in September. WTI call options also saw trading volumes above average, with most transactions favoring buyers when prices exceed $100 per barrel.
