The Case For Oil Gains Into A Weekend Wins Again Amid $100 Brent Call Frenzy

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by Tyler Durden
Friday, Apr 12, 2024 - 06:40 PM

A few weeks ago, Bloomberg commodity expert Alex Longley,wrote - correctly - that given the geopolitical risk in the world, there’s hardly any reason for traders to brace for oil declines on a Friday. Fast forward to today, when that statement is even more true now than it was then.

And as Longley follows up this morning, given markets globally are now bracing for what reports say is an expected imminent attack by Iran on Israel, there’s always going to be a fresh geopolitical bid. But more importantly, "it’s difficult to see anyone going short heading into two days when the market is closed." Well, maybe not difficult, but extremely stupid, naive and foolish.

For crude that’s even more pertinent given things have been on the front foot in recent weeks. Most traders are talking up stronger demand numbers and OPEC+ for now appear to be succeeding in keeping the market tight. Even those I talk to who believe any major escalation in the conflict can be contained — and with it wider oil-market impact — aren’t keen to bet against prices yet.

Longley concludes by summarizing that if you "throw a wider reflation trade and massive geopolitical risk, and you’ll find that Fridays are particularly predisposed to big moves, just like we’re seeing right now."

Meanwhile, traders are doing just that: according to the latest Goldman rerack of oil market derivatives, total open interest across the main oil futures contracts climbed to 6.415 million lots, the highest since Feb 2022, with holdings in ICE Brent and Nymex gasoline powering higher. Brent call options continued to be traded in large volumes, outpacing puts for an 11th day, with activity dominated by strikes at $100 and above.

Needless to say, aside from a few misguided shorts, most are expecting a powerful breakout from here with Brent’s second-month 25-delta put skew had the biggest bullish bias since October.

Here are the most active Brent options on Thursday:

Brent call volumes remained elevated at 218k lots with Friday call volumes outpacing puts for 12th session; longest run since January.