How Far Can Oil Rally? Investors Wager on Surge Above $100

[Purveyor]

Oil investors are buying contracts that will only pay out if crude rises well above $100 a barrel over the next four years -- a clear sign some believe today’s bust is sowing the seeds of the next boom.

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 market faces a supply crunch in the next 24 months," said Francisco Blanch, head of commodities research at Bank of America Merrill Lynch in New York. "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."

Over the last month, investors have bought call options -- giving the right to buy at a predetermined price and time -- for late 2018, 2019 and 2020 at strike prices of $80, $100 and $110 a barrel, according to data from the New York Mercantile Exchange and the U.S. Depository Trust & Clearing Corp.

Even before the most recent flurry, some investors had already built super-bullish positions. The largest number of outstanding contracts -- or open interest -- across both bullish and bearish options contracts for December 2018 is for calls at $125 a barrel. For December 2020, it’s for $150 calls.

"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," said Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd.

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http://www.bloomberg.com/news/articles/2016-06-10/how-far-can-oil-rally-options-investors-bet-on-surge-above-100

[tonyt53]

1. Uh, crude is down about $4 a barrel in the past two days.

Few see $100 a barrel for the next few years. Most analysts predict it staying between $40 and $70 for the next 3-4 years. Groups, like BofA are trying to get investors sucked into oil again. If they don't all the money that has been loaned to the oil speculators will be lost.

[Purveyor]

2. All depends on the new crusade we launch against the ME with the

election of the next president, imo.

[notemason]

3. Doesn't have to reach the strike price

to be profitable. Only needs to go up.