Nymex data point to ‘momentary’ oil surge

MUMBAI: A small section of punters is betting on a momentary increase in crude oil after prices fell more from current levels of sub-$50 a barrel, leading commodity brokers and derivatives experts have said.

The punters are basing their bets on the premise that prices might not fall below $35-40, the marginal cost of production of many fields across the world. At these levels, experts including wealth manager SK Joshi, former finance chief of state-owned refiner BPCL, said supply from many fields could begin shutting down, which may provide a boost to the price.

The keenness in bullish wagering by local punters stems from options data on oil on Nymex, the leading US derivatives bourse for energy products. The $50 strike call option, which expires in March and allows a buyer to profit by buying oil for $50 even if it trades higher, has witnessed a spike in outstanding trader positions or open interest (OI), a gauge of money flowing into a market

From just 47 contracts on Friday, the option OI rose to 1,570 contracts intraday on Tuesday even as the price of the option fell to a record low of $3.26, Bloomberg data shows. While Joshi attributed the rise in OI partly to a shifting of the “centre of gravity” to $50 with oil having fallen recently, he does not discount the probability of traders building bullish wagers.

The March expiry $50 put option, which has seen much greater participation, witnessed a fall in OI on profit booking, giving “credence” to the belief of some analysts that a price bottom could be in sight, said Harish Galipelli, head of research, JRG Wealth Management.

The put option contract witnessed a decline in OI from 31,704 contracts to 30,868 contracts as its price touched a record high of $3.86 intraday Tuesday.

On local bourse MCX, the active oil contract traded at a 4-year low of Rs 3,118 a barrel. The open interest of the contract rose to 40,288 units intraday Tuesday from just 28,565 units on Friday.