Trading surge in oil options creates a whirl of speculation

New York

GLOBAL oil options markets this week were the busiest since November after a flurry of buying from what appeared to be a large producer protecting against a drop in prices.

Trading on Monday was dominated by US$60 puts - which give the owner the right to sell oil contracts for the rest of 2019, with a total of 16 million barrels changing hands in June, August and September, ICE Futures Europe exchange data show. More than eight million barrels of similar contracts traded in the over-the-counter market, said people familiar with the matter.

The buying spree continued on Tuesday, the sources said, with implied volatility for Brent August US$60 puts - a measure of how expensive they are - also rising. The volume of puts was the highest since November, exchange data show. Brokers and dealers said that increased activity seen in the US swap data repository in recent sessions was likely tied to a major hedging programme.

Some pointed to Petroleo Brasiliero SA, given the timing and size of the trades. Petrobras said in a 2018 filing that it hedged 128 million barrels of crude at an average price of US$65 a barrel, buying the protection in February and March. BLOOMBERG