From the Wall Street Journal

Narrowing supplies from Iran and robust global growth drive market’s bullish sentiment

A hot streak in the oil market is setting off a wave of bets on how high prices can go.

With crude prices rallying for four straight weeks, trading of oil options—contracts that give the right but not the obligation to buy or sell—has surged.

The number of bullish contracts that pay out if Brent futures surpass $100 a barrel by January—up 19% from the current level—has more than doubled since the beginning of September, data from Intercontinental Exchange analyzed by QuikStrike show.

Shrinking supplies from Iran, along with strong global growth, have fired up bullish sentiment in the oil market.

Uncertainty over how much politically troubled OPEC members can pump to make up for production shortfalls could propel prices to $100, say analysts and officials in the Organization of the Petroleum Exporting Countries.

Oil prices fell Monday as reports emerged that the U.S. could give some buyers of Iranian crude waivers when sanctions on the country start in November. Still, Brent, the benchmark for global crude prices, has soared 25% this year to $83.91, while West Texas Intermediate, the reference price for U.S. crude, has risen 23% to $74.29.

Investors who missed the rally are now weighing bullish options to capture any additional gains, said Chris Kettenmann, chief energy strategist at New York-based brokerage Macro Risk Advisors.

“The market is considering $100 oil for the first time in five years,” he said.

Options tied to Brent prices hitting $95 have ramped up as well, more than quadrupling since the start of September, the data show.

Investors have also turned to bullish options on oil exchange-traded funds and shares of energy companies.

An options measure known as skew on the United States Oil Fund, a popular oil exchange-traded fund called USO, is near the lowest point in a year, Trade Alert data show. Skew tracks how much it costs to protect against declines, so a low level tends to indicate investor confidence.


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