OIL PRICE JUMP Nearly $80
Oil prices face further upward pressure as they near $80 a barrel because of heavy trading in options contracts ahead of the year end, brokers and analysts said.
A large number of call options – contracts giving holders the right to buy crude oil at a predetermined price – have been struck above $80.
If spot oil prices rose above that level, the sellers of the call options will be forced to buy futures to cover their positions, further lifting oil prices.
“The options could accelerate prices and put fundamentals considerations to the side,” said Olivier Jakob, head of Swiss-based oil consultancy Petromatrix.
Raymond Carbone, president of Paramount Options on the New York Mercantile Exchange floor, added that traders who sold the options, ranging from bearish speculators to Wall Street banks, will have to cover their positions if prices rise further, opening the door to an options-driven rally.
US oil futures for delivery in December, the most active contract, rose yesterday to a $79.49 a barrel, the highest in a year, before paring gains to trade at $79.12.
The risk of higher prices on the back of options trading comes even if the fundamentals of supply, demand and inventories are mildly bearish, traders said. In particularly, they noted rising inventories of diesel, a sign that the economic recovery has yet to translate into higher consumption of the industrial fuel.
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