Bets on oil prices are the most optimistic in the last 2 years, amid tensions in the Middle East

As traders worried about the risk of a major price hike, appreciation for second-month West Texas Intermediate futures rose to the highest level since March 2022, when Russia’s invasion of Ukraine sparked concerns that millions of bpd of oil from one of the world’s leading producers would suddenly disappear from the market.

In a stunning turnaround, hedge funds, commodity trading advisers and other money managers rushed to reverse positions that had turned bearish on crude oil in mid-September, on the grounds that slower economic growth in China and other parties would cut demand, just as OPEC+ producers were preparing to do so. increase the offer. About two weeks ago, investment volume peaked, with traders paying for bear options as futures crashed to $70 a barrel.

But the escalation in the Middle East changed everything. While some traders exited calls they had previously sold, most are now looking to buy insurance against rising prices.

“We have seen considerable volatility supply and increased demand for exposure to rising oil prices,” said Anurag Maheshwari, head of oil options at Optiver. Implied volatility is past a peak since October last year, “which seems reasonable given that this escalation has potentially more impact on oil supplies.”

Last week, traders snapped up December calls on Brent crude to bet on oil reaching $100 or more, with total call volume hitting a record high on Wednesday. WTI futures rose as much as 11 percent on concerns that Israel could strike oil facilities in retaliation for Iran’s missile attack, sparking fears of a supply disruption in the Middle East. Concerns eased slightly on Friday as US President Joe Biden tried to discourage such a move.

Read more: Oil options show market poised for more gains in Middle East war

Money managers’ net long positions in Brent crude rose by more than 20,000 contracts in the week to October 1, according to data from ICE Futures Europe, extending a bullish shift that began in earnest after China announced a massive stimulus package to -supports its economy.

“Options traders have given up on the idea of ​​a rally, leaving the implied volatility of oil call options near multi-year lows,” said Carley Garner, senior strategist and founder at DeCarley Trading. “Essentially, the market wasn’t ready for the surprise and we’re seeing FOMO now that prices are finally moving in favor of the bulls.”

In addition to overall crude oil prices, traders also made odd bets on the structure of the sharply rising futures curve. More than 5 million barrels bet on the closest Brent spread, reaching $3 a barrel last week – it was 62 cents on Friday.

Market stress was seen most in short-term contracts, with the futures structure for 25-delta options showing bullish trading has increased in recent days. Implied volatility for December calls rose more than 30 points last week, more than three times that for puts, while there was almost no change for either bulls or bears for July contracts and further.

The bullish outlook for commodities – both Brent and WTI – has outweighed that for producers, who are likely to see a benefit only if prices stay higher for longer. Volatility and call declines in US Oil Fund LP’s one-month options rose more than in the SPDR S&P Oil & Gas Exploration & Production ETF.

“The escalation in the Middle East triggered a massive amount of short covering in crude as CTAs moved from short to neutral,” said Rebecca Babin, senior equity trader at CIBC Private Wealth Group. “Energy core investors remain quite sour in 2025 and are using call options rather than watching crude oil rise to gain positive exposure to a potential supply disruption.”