Ft: Scramble To Insure Against More Oil Price Rises

[BTLlivingthedream]

Scramble to insure against more oil price rises

By Javier Blas, Commodities Correspondent

Published: November 5 2007 22:18 | Last updated: November 5 2007 23:13

Energy consumers and speculators are scrambling to take out options contracts to insure themselves against oil prices rising above $100 a barrel – a further sign of growing expectations of a spike in the crude market.

Some have even taken out contracts to protect themselves against prices rising to $250 a barrel in the next two years.

The buying frenzy has been “extraordinarily” strong in the past week as oil prices rose to a record high of $96.24 a barrel, according to traders and bankers.

“Options calls of strikes well over $100 a barrel are being bought by the thousands,” said Nauman Barakat of Macquarie Futures in New York.

The strong flows in call options – contracts that give the right to buy at a predetermined price and date – are boosting short-term oil prices as the banks that sell them have to hedge some of their positions by buying crude oil in the spot market.

There has already been a sharp increase in the number of outstanding options contracts, or “open interest”, at the New York Mercantile Exchange. This represents only a fraction of the overall market, which is concentrated on over-the-counter deals.

The open interest in Nymex December 2010 call options at $100 a barrel rose on Monday to 24,903 contracts, double the level of the start of the year. The open interest at $120, $160 and even $250 a barrel is also rising although from a significantly lower level. The open interest in $100 a barrel call options for December 2008 has doubled since the start of the year.

Banks hedging the call options they have sold or are selling has been a factor pushing prices towards $100 a barrel, according to traders. But fundamentals have also played a role.

The open interest at the December 2007 call option at $100 a barrel is unusually high at 48,032 contracts. As banks cover their positions, that could push the spot price towards $100 a barrel.

“High open interest for December 2007 calls at $100 speaks plenty of the ingrained nature of the target in market psychology,” said Harry Tchilinguirian, at BNP Paribas in London.

But traders said the market was vulnerable to a correction once the options contracts for December expired next Tuesday.

[malco]

Interesting. I wonder if the financial world has finally picked up on the Peak Oil story, especially after Sadad al-Husseini made the astonishing admission last week that 300 billion barrels of claimed reserves in the Middle East are actually phoney. That really hit me like a blow when I read that coming from somneone of his stature.

The gold bull is finally getting some attention in the pleb papers like Metro. Peak Oil is still not.

I remember when I was a kid I felt sad to have missed something as exciting as WW2. Now it looks like I'm going to live through something at least as epoch-making.

[dancer7]

Peak Oil still does not get the attention it deserves. It does sneak into the papers from time to time, but not to any great degree. There are probably too many other problems pushing in at the moment...but Peak Oil is potentially momentous.

Unfortunately, we are bedevilled by governments who seem incapable of taking in the big picture - short termism is the only game in town!

[smiffy1967]

Peak Oil still does not get the attention it deserves. It does sneak into the papers from time to time, but not to any great degree. There are probably too many other problems pushing in at the moment...but Peak Oil is potentially momentous.

Unfortunately, we are bedevilled by governments who seem incapable of taking in the big picture - short termism is the only game in town!

I personally have given up, i have spent the best part of the last 6 years talking about this subject, writing about this subject, have been a member of powerswitch and peakoil.com for ages, sent MP's letters, wrote to the newspapers, read books like the party's over, powerdown, high noon for natural gas, the limits to growth and the best book I've read was the long emergency.

I have been laughed at, ridiculed, told i'm a lunatic and should stop worrying as we will find an answer and that their is and will never be a shortage of oil, so i have given up wasting my time trying to educate all those wonkers out their whom think that we live on a planet with endless and endless resources, in fact i actually feel like putting my head in the sand Now!

The only thing that will possibly give me any joy about this whole senario, is when i,m and many of you are proved 100 % correct guaranteed (to steel another posters favorite saying).

I spent this summer growing food in my back garden and have learn t a lot of bushcraft skills, i hope you all do the same and also keep a cool head about what will soon happen!