Last Friday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, jumped 4.1% and the United States Brent Oil Fund (NYSEArca: BNO), came under pressure on speculation Saudi Arabia will not take steps to limit oil output.
Saudi Arabia is one of the world’s largest producers and the dominant voice in the Organization of Petroleum Exporting Countries (OPEC). While production has declined in the U.S., recently rebounding oil prices are encouraging exploration and production companies to revisit spending plans with some increasing capital expenditures. That has some oil market observers concerned about a rising rig count and the subsequent impact on crude prices.
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Some energy market observers are clear in their assessments and they see oil trading higher in the coming months. Some professional traders do not see the current oil bear market lasting very long. Still, some concerned oil market participants believe oil is rallying without strong fundamental cause. A case can be made that oil’s rally is defying still troubling supply dynamics and tepid demand.
“Roughly 116,000 USO calls have changed hands so far — in the elevated 87th percentile of the exchange-traded fund’s (ETF) intraday range — compared to around 78,000 puts. Most active is the December 11.50 call, due to a 28,235-contract block that was bought to open for a about $1.1 million (number of contracts * $0.39 premium paid * 100 shares per contract),” according to Schaeffer’s Investment Research.
OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers.
Friday’s “skew toward calls is just more of the same for USO options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the ETF’s 10-day call/put volume ratio of 1.65 ranks in the 89th annual percentile. In other words, calls have been bought to open over puts at a faster-than-usual clip,” adds Schaeffer’s.
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United States Oil Fund
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