crude oil futures news

crude oil futures news

March 10th, 2015

Bets that oil prices will plunge below $35 a barrel by June have lost almost 80 percent of their value after the U.S. benchmark recovered from a six-year low.

June $30 and $35 puts, or wagers that West Texas Intermediate oil will drop below those levels, have tumbled since January. Prices traded within an $8 range last month, the least since September.

The oil market has stabilized as explorers canceled rigs at a record pace, boosting speculation that U.S. production will decline later this year. Goldman Sachs Group Inc. said its forecast for crude at $40 a barrel may be too low as demand recovers. An index of price volatility slid from the highest level since 2009.

“People are kind of settled in and feel comfortable with the current price range,” Paul Crovo, a Philadelphia-based oil analyst at PNC Capital Advisors, said by phone on Monday. The likelihood of oil slumping to $30 has “lower probability at this point based on the fundamentals that we currently see emerging here.”

June $30 puts, which had the most contracts outstanding among WTI options as of March 6, dropped to 10 cents a barrels Monday, down from 52 cents on Jan. 23. The June $35 puts declined to 25 cents from as high as $1.08 on Jan. 23.

Front-month WTI futures gained 16 cents to $50.16 a barrel in electronic trading on the New York Mercantile Exchange at 12:15 p.m. Singapore time. Prices closed at $44.45 on Jan. 28, the lowest level since 2009. The June WTI contract added 19 cents to $53.14.

Crude Oil: Volatility Index

The CBOE Crude Oil Volatility Index, which measures oil price fluctuations using options of the U.S. Oil Fund, dropped to 47.09 on March 5, the lowest level since December. It surged to 63.14 on Feb. 5, the highest since April 2009.

Volatility eased after “the oil price arrested its decline and moved higher in early February before consolidating into a $48 to $53 range,” Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy, said March 6. “With prices moving in a narrow range, the scope for large daily changes in price has declined.”

Price fluctuations are still high compared with the average of about 18 in the first half of 2014, before WTI’s plunge. Volatility may pick up again as U.S. crude supply keeps rising, according to Tchilinguirian.

“Consecutive positive supply shocks could lead to another sharp leg down in oil prices,” he said. “This implies that the official exit from the winter season at the end of March can see the potential for another pick up in volatility.”

Oil Futures: Slower Production

Oil prices may still reverse their recent advance, though the failure of inventories to increase amid weather-related disruptions and stronger-than-expected demand means there’s a risk prices will miss its target for the next two quarters, according to a Goldman report dated March 8. Goldman forecast in a Jan. 11 note that WTI would drop as low as $40.50 a barrel in the second quarter.

WTI gained 3.2 percent in February, the first monthly increase since June. Rigs targeting oil decreased to 922 in the week ended March 6, the lowest level since April 2011, according to Baker Hughes Inc. The rig count was as high as 1,609 in October.

“The market anticipates that prices are going to be higher in the second half because our production will slow down and eventually come to a halt,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas.

Bank of America Corp., which had forecast last month that WTI will fall to $32 by the end of this quarter, raised its price target to $45 in a report dated March 6.

Crude inventories at Cushing, Oklahoma, the delivery point for WTI futures, increased 536,000 barrels in the week ended Feb. 27, the smallest gain since November, according to the Energy Information Administration.

- Moming Zhou in New York at Bloomberg.