After keeping an eye on the Middle East for a week, oil prices finally “fluctuated” and returned to a “waiting mode”

wallstreetcn ·  Apr 21 19:05

Although oil prices have never surpassed the high before Iran attacked Israel last weekend, the volume of bullish Brent crude oil options soared to a record high. Brent crude oil futures fluctuated the most in a few months, leaving traders in almost the same situation as a week ago during the weekend, waiting for the next steps of Israel and Iran.

As Israel launched “limited retaliation” against Iran and Iranian media downplayed Israeli attacks, crude oil finally “made no surprise” this week, and oil prices never surpassed the high before Iran attacked Israel last weekend.

Despite reports of Israel's counterattack this Friday, oil prices soared again in response, but in the end, they ended up falling slightly. This shows that, at least for now, traders are betting that regional tension will not turn into a conflict disrupting global oil supply in the short term.

However, this week, oil prices showed the biggest fluctuation in a few months during the trading day. Also, in the options market, speculators have been snapping up contracts at record speed to profit from any increase in futures prices.

“Although it is difficult to assess whether this is a temporary phenomenon or the beginning of a new escalation in the conflict between Iran and Israel, initial market reactions suggest that the former is more likely,” said Jorge Leon, an analyst at consulting firm Rystad Energy.

Although the price of Brent crude oil remains between $85 and $90 per barrel, the risk of crude oil is beginning to attract global attention. A senior International Monetary Fund official warned on Friday that a serious oil crisis could occur.

Trading volume for bullish Brent crude oil options has surged to record highs this week. Meanwhile, the total amount of Brent call options held by traders reached the highest level since 2020, and there are more call options with an exercise price of $110 over the next 12 months than any other contract. Furthermore, there are even options that have execution prices of $150 or more. These types of contracts continue to have a huge premium over put options, but have declined in recent days.

The media quoted Nathan Sheets, Citigroup's global chief economist, as saying, “The problem with geopolitics is that you have to seriously consider tail risk. The key question is what the market is concerned about, namely: 'How will this affect oil supply? '”

Currently, oil prices are still fluctuating. Brent crude oil futures recorded the biggest intraday fluctuation since November last year this Friday, leaving traders in almost the same state over the weekend as a week ago, waiting for the next steps of Israel and Iran.

International Monetary Fund (IMF) First Vice President Gita Gopinath said: “If the situation escalates seriously, then we could face a serious oil shock. But we haven't reached that point yet.”

Overall, the market reaction seemed relatively calm after it became clear that Israel's attack on Iran was far more limited than initially feared.

However, this calm has overshadowed the international community's deeper unease with the region. A senior European official warned that the situation is still very tense, and if clashes between Iran and Israel break out again in the next few days, there is no guarantee that new clashes will be contained.

Economist Ziad Daoud wrote in a report: “As Iran and Israel directly attack each other, the risk of a wider war has risen. This may be intentional, escalating in a cycle of violence, or due to a misjudgment. But whatever the reason, the impact on the global economy will be huge.”


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