Traders to Collect Big on Slick Bet
November 17th, 2008WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Here’s a different kind of Peak Oil chart than the one you’re used to seeing.
West Texas Intermediate Crude Oil vs. U.S. Dollar Index, weekly interval
Via: Financial Times:
Investors who placed summer bets that oil prices would fall below $100 a barrel are set to make huge profits on Monday, with some speculators reaping a return of more than 2,000 per cent in less than six months.
The expiry of the December put options – derivatives that give holders the right to sell at a predetermined price and date – means some investors will be selling oil at prices as high as $100-$120 a barrel, well above Friday’s close of $57.04 a barrel.
Traders warned the expiry was likely to trigger volatility in the oil market.
When oil was at $140 this summer, a few airlines ‘lucked’ out by having locked in contracts at $100, so they could price tickets lower than other airlines which instituted $50 bag fees. Maybe now it is reversed? This week, if you scan the business pages (where it is clear that the copper market crashed) vs. regular city news in news.google, general awareness hasn’t caught up. There are all sorts of articles about special laws for metal theft and police still catching people stripping street lights.
Ah derivatives, the financial equivalent of genetically modifying food to escape safety regulations.
Notably, the delta between the two has increased manyfold even though the shift correlation is really strong, almost matched. In early ’07 a 2% move up on the USDX caused oil to move down about 3% – lately a 20% move up on the USDX has caused a ~60% drop on the price of oil, so the correlation delta has roughly sextupled. This suggests supply constraints.
By the way, you might enjoy oiligarchy.
I don’t know how relevant this is, but it appears that the US Dollar Index shot up a whole ten points today, almost approaching its record high for the previous one-year period.
I seriously doubt anyone rode this oil decline down by more than a third. I bet most traders have been losing money trying to call a bottom on it.
Apologies for putting my foot in my mouth last night. The index didn’t jump a whole ten points in one day. I misinterpreted something I read on some website.