Taken from “Traders are betting on $100 oil in 2018” by Tsvetana Paraskova (originally published on 9.29.17 on Oilprice.com):
While oil industry executives are preparing to live and profit in the world of $50 oil over the next few years, some enthusiast investors have been betting on $100 oil for December 2018 options.
Open interest in $100 call options for December 2018 has tripled in one week to exceed 30,000 lots, according to Reuters. Open interest in that contract is now equal to the most active contract of the December 2017 options—$60 call options. The $100 December 2018 options is the largest strike for all of 2018.
So you’re saying there’s a chance
Although bullish reports over the past few weeks point to stronger-than-expected oil demand growth, and although global oversupply has reduced over the summer, the bets for $100 oil at the end of next year are still way above estimates and forecasts. But that hasn’t stopped some traders from shooting the moon.
After oil prices entered bull-market territory at the beginning of this week, analysts started weighing in again on the future price of oil: How much could it rise? Could the increase be sustained?
Over the past week alone, we’ve seen one analyst predict prices of $80 per barrel. A panel of several other analysts forecast a price drop if OPEC were to end its production cut deal as planned in March 2018.
Citi added its two cents: whatever OPEC does, supply will likely get tighter next year, suggesting that prices would head upward.
Three years of low oil prices have constrained investments in conventional projects, and the IEA has just recently reiterated its warning that an oil price spike is in the cards in 2020, citing growing demand for oil that could outstrip the pace of new conventional supply.
“The lack of spending always comes home to roost,” Richard Robinson, who manages the global energy fund of Ashburton Investments, told Reuters.
“With inventories soon to balance, the psyche of the market should move and the questions posed by investors will also change. With the dynamics currently in place, we expect to witness significant opportunities as the oil price moves higher,” said Robinson, who doesn’t see oil reaching $100.
According to a recent note by Energy Aspects, as carried by Reuters:
“Our point is there is not enough oil at $50. We don’t deny that demand growth can slow materially from around 2026 … But legacy projects peak this decade, well before demand is likely to, setting up for an imbalance.”