Middle East Unrest Fuels Record Oil Futures Rise: Traders Rush for Cover Amid Supply Disruption Fears

Rising conflicts in the Middle East cause a significant increase in oil futures as traders hastily seek protection. The unrest in the Middle East prompts a record annual surge in oil futures, with traders quickly purchasing call options due to concerns over potential supply disturbances. Once again, turbulence in the Middle East leads to the highest annual rise in oil futures, with traders rapidly acquiring call options due to apprehensions of supply interruptions.

Last week, oil futures experienced their biggest increase in over a year. Moreover, the activity was even more intense in the options market.

Traders are worrying about the possibility of a significant increase in prices, resulting in the call skew for West Texas Intermediate futures for the second month rising to its peak since March 2022. This was when fears grew due to Russia's attack on Ukraine, which raised the potential that millions of barrels of oil daily from one of the leading global producers could abruptly vanish from the market.

In a surprising shift, hedge funds, commodities trading advisors, and other financial managers hurriedly changed their stance from being pessimistic about crude oil in mid-September. This was due to fears that a decelerating economy in China and other regions would reduce demand just as Opec+ producers were preparing to increase supply. Approximately two weeks ago, the volume of put options reached its peak, with traders willing to pay more for pessimistic options as futures dipped near US$70 a barrel.

However, the intensifying situation in the Middle East has altered the entire scenario. Although some investors withdrew from previously sold options, the majority are currently seeking to safeguard themselves against a potential spike in costs.

"Anurag Maheshwari, the head of oil options at Optiver, has observed a significant increase in oil price volatility and a growing demand for positive outcomes related to oil prices. The implied volatility has now exceeded last October's high, which Maheshari believes is justifiable considering the current situation could have a greater effect on oil supplies."

Quarter to four

Iran initiates a missile strike on Israel, with Netanyahu promising retaliation.

Oil futures experienced a minor dip on Monday following consecutive days of increases. Brent was being traded at a decrease of 34 cents, with the price per barrel at $77.71, while West Texas Intermediate also saw a comparable decline, with the price standing at $74.13 as of 7:38am London time.