Investors Raise Bets on WTI Price Fall

The trade was a sign of the crescendo of negativity.
The trade was a sign of the crescendo of negativity.

It has come to this for the beleaguered oil market: a big bet that prices are about to sink to their lowest level in more than a year.

About $7 million worth of options changed hands in US markets on Friday that will pay off if West Texas Intermediate crude falls beneath $39 a barrel by mid-July, according to data compiled by Bloomberg.

WTI, which hovered around $46 Friday, has not traded below $39 since April 2016, though it’s been dropping like a stone in recent weeks. More than 14,000 August $39 put options changed hands, almost 20 times the number of contracts previously outstanding for the bearish option.

The trade was a sign of the “crescendo of negativity" that is washing over the oil market, said James Cordier, founder of investment firm in Tampa, Florida.

Prices have plunged about 13% in the last three weeks, amid fears that OPEC-led production cuts are not doing enough to stem a global supply glut.

For Friday’s bet to work, prices would have to match that drop in the next few weeks, during a time when summer driving typically pushes demand higher, Cordier said by telephone.

“That’s just a huge speculative bet that tells me that the fear is at its heights and we’ll probably see oil recover," he said. “It’s a hell of a lottery ticket that the market’s going to keep falling."

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