New York traders raise wagers on oil falling below $30

MUMBAI: Punters in New York raised bets on crude oil declining to $30 a barrel over a week after the generic contract hit an intraday low of $34.8 on Wednesday, the lowest since December 21, which in turn was an 82-month low. The generic contract, which is the global benchmark and most traded, traded 95 cents lower at $35.02 intraday Wednesday.

Citing data on New York Mercantile Exchange (Nymex), brokers here are advising their clients to sell crude on commodity exchange MCX, whose oil contracts take price cues from Nymex crude. Harish Galipelli, head of commodities research at south-based Inditrade, recommends selling crude at Rs 2,420 (intraday price on Wednesday was at Rs 2,346) for a weekly target of Rs 2,300, which, if broken, can decline to Rs 2,200. He, however, advises trading with stop loss at Rs 2,540.

Galipelli justified the sell call way above the traded price ahead of weekly US inventory data later in the day. He said a possible drawdown of inventory could result in price temporarily bouncing back. But, he added, if inventories were higher than expected, price could fall from current levels itself. On Nymex, the $30 strike put option, the most active strike expiring in seven days, saw an intraday accretion of open interest (OI) by 554 contracts at 25,865 contracts.


The rise in OI was accompanied by an intraday rise in the price of the option by 67% at 10 cents. A rise in OI of a put option when prices rise implies that traders are confident the underlying as-set (oil in this case) would fall; this, in turn, will raise the option’s price. An approximate decline of $5 in oil, translates into rupee price falling by 334 based on the current exchange rate.

However, oil experts like SK Joshi, former director ( finance), BPCL, warned a depreciation in the rupee could result in cushioning the fall in oil in rupee terms. What adds to the bearishness in oil is that the most active $40 strike call option, expiring in a week, saw an addition in OI by 372 contracts intraday to 14,069 contracts. This as the price of the option declined by 39% intraday to 8 cents.

A rise in OI accompanied by a fall in prices implies that there’s more of selling of the call rather than buying, as sellers don’t expect oil to rise to $40 or more in the near term. Sellers of options pocket premiums from buyers. A call option seller gains when the underlier falls.