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Investors increased bets that oil prices may surge to as much as $250 a barrel on concern the unrest in Egypt will disrupt traffic in the Suez Canal and spread to Saudi Arabia.
Open interest in the $250 call option for December, which give the buyer the right to purchase oil futures on the New York Mercantile Exchange at that price, climbed to 242 from 142 on Feb. 1 and stayed at that level yesterday. The most active options yesterday were the March and December $100 calls followed by the December $120 call.
“What we are seeing is similar to people buying a lottery ticket,” said Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania. “They are making a bet that there will be a disruption of the Suez Canal or an uprising in Saudi Arabia, neither of which looks likely.”
The Suez Canal is operating as usual, Egypt’s Prime Minister Ahmed Shafik said at a media conference today. About 2.5 percent of global oil production moves through Egypt via the Suez Canal and the Suez-Mediterranean Pipeline, according to Goldman Sachs Group Inc.
The December $250 calls settled yesterday at 11 cents a barrel, or $110 per contract.
Crude oil for March delivery slipped 52 cents, or 0.6 percent, to $90.34 a barrel at 10:58 a.m. on the New York Mercantile Exchange. The contract touched $92.84 on Jan. 31, the highest intraday price since Oct. 7, 2008. Futures are up 17 percent from a year ago.
Oil Rally
Oil capped the biggest two-day rally since May on Jan. 31 on concern the unrest in North Africa will spread to crude- exporting nations in the Middle East. Saudi Arabia, the United Arab Emirates and Kuwait, three of the Organization of Petroleum Exporting Countries’ six biggest oil producers are located on the Arabian Peninsula and haven’t seen unrest.
Saudi Arabia is “perfectly unstable,” like Egypt, where 10-day protests are threatening the 30-year rule of President Hosni Mubarak, said Nassim Taleb, author of “The Black Swan.”
“A perfectly fragile country is a country, say like Egypt” before “the recent events, where there is no variation and then -- puff -- you got a crisis and it’s mayhem,” Taleb, a New York University professor, told a conference in Moscow hosted by Troika Dialog. “So Egypt is perfectly unstable, Saudi Arabia, countries like that.”
To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.
