OPEC+ Cut Spurs US Hedging

OPEC+ Cut Spurs US Hedging
OPEC+ Cut Spurs US Hedging

The decision by the Organization of Petroleum Exporting Countries and allies last week to cut oil production has spurred a flurry of activity in the options market, with more US bettors opting for a bearish stance, data from CME Group showed.
OPEC+, as the group is known, decided on Wednesday to cut its target by 2 million barrels per day, including voluntary production curbs by Saudi Arabia and other nations, Reuters reported. 
Oil futures have risen by over 7% since to five-week highs, as the move was seen as putting a floor under the market.
However, the US oil options market, skewed toward buying put options, used to either bet on or protect against downside movement. 
There are several reasons why this can happen, including worry about weaker demand, or because the cheapness of those options made it an opportune time for oil companies to buy to protect against downside.
“I would classify the put buying as hedges,” said Bob Iaccino, chief market strategist and co-founder of Path Trading Partners. 
“Demand is still expected to be weak and get weaker given the overall economic picture … so it is just massive, massive hedging in case the downside develops.”
Trading volumes for US crude futures and calls for November delivery gained over 40% to Wednesday.

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