Whatever the outcome of tomorrow’s OPEC meeting, options traders are betting on oil-price swings.
That’s because the decision from the Organization of Petroleum Exporting Countries isn’t likely to make much difference. Slowing global demand and a U.S. shale-drilling boom has created a glut that won’t fade any time soon, said Torbjoern Kjus of DNB ASA in Norway.
Half of analysts surveyed by Bloomberg expect a cut in production at the meeting in Vienna tomorrow; the rest don’t see a deviation from OPEC’s 30 million barrel-a-day target. Yet an index tracking expectations for moves in oil prices reached the highest ever versus a gauge that measures volatility in equities, according to Bloomberg data going back to May 2007.
“We are still talking about a market that is 2-million barrels-a-day oversupplied in the first half of next year,” said Kjus, a senior oil market analyst at DNB. “Even if OPEC delivers on net production cuts, we don’t think that will be enough. We are not talking enough to turn this market around.”
The Chicago Board Options Exchange Crude Oil Volatility Index, which tracks the cost of options on an exchange-traded fund tracking the commodity, has more than doubledfrom a low this year in June. The CBOE Volatility Index measuring options prices on the Standard & Poor’s 500 Index has advanced 14 percent in the same period.
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