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Spotlight on Oil

Unrest in the Saudi Arabian political sphere over the weekend drove oil up more than 3% in Monday’s trading session with Brent above $64 and WTI above $57 – highs not seen since summer 2015. After nearly a year and a half of rangebound trading, global geopolitical uncertainty seems to be giving an already bullish market the confidence to run.

ATM volatility predictably jumped as well with a larger jump in WTI than in Brent:

And here are the vol curves compared to a week ago:

For non-oil traders, here’s a short breakdown of Brent vs WTI:

Brent – light sweet crude oil extracted from one of four oil fields in the North Sea. Typically refined in Northwest Europe. Contracts are listed on the ICE.
WTI – light(er) sweet(er) crude oil produced in the United States, price settled at Cushing, Oklahoma. Typically refined in the midwest and gulf coast regions. Contracts are listed on the NYMEX (part of CMEGroup).

(Both contracts are quoted in USD. Contract sizes are 1,000 barrels with a tick ($0.01) worth $10.)

Oil and Gold Update

Friday’s 3% drop in crude oil definitively broke below $50/barrel with open interest for WTI (as reported in the COT Report) at all time highs. Headlines cite lessening concerns regarding Tropical Storm Nate and oversupply issues. Volatility remains subdued though ahead of OPEC’s Monthly Oil Market Report on Weds followed by the IEA’s report on Thurs.

The WTI COT Report also shows that Producers – who have a natural bias to be short – haven’t been net short this little since Jan 2015 (AKA their net position, while still short, is the longest it’s been in awhile). In Brent, the Money Mangers’ net position is the shortest it’s been in our data’s history (dating back to 2008).

Funny trade in gold on Friday as well – expiring over a year from now the following trade was blocked – all new positioning:

– 7,500 Dec18 2000 calls @ 3
– 7,500 Dec18 2600 calls @ 0.15
– 15,000 Dec18 3000 calls @ 0.1

The sizes make it look like a call spread stupid (the 2000-3000 call spread WITH the 2600-3000 call spread) for when the SHTF – but that far out both in strike and expiry, who knows.

QuikStrike In The News

QuikStrike got a mention in the WSJ’s article “How Traders Are Making Money as Oil Prices Go Nowhere” [paywall] by Stephanie Yang. In the article she points out that oil traders have been focused on mean-reverting (rangebound) strategies in this low-volatility environment.

She notes: “Recently, traders have been fixated on the $45-to-$55 range, where options positions are the most concentrated, according to data provider QuikStrike.” You can see this for yourself by going to Market Reports –> OI & Volume Heat Map (or OI & Settle Detail if you want a specific expiry). Paid versions can generate PDF links like this one to send to colleagues or clients.

Happy trading.