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 slipped 1 cent to 10 cents a barrel today, or $100 per contract.
Crude oil for March delivery slipped 32 cents, or 0.4 percent, to settle at $90.54 a barrel on the New York Mercantile Exchange today. The contract touched $92.84 on Jan. 31, the highest intraday price since Oct. 7, 2008. Futures are up 18 percent from a year ago.
May $125 Calls
The May $125 calls were the most-actively traded option yesterday, with 24,828 contracts exchanged. That dwarfs the previous highest single-day volume for the option of 1,101 lots. Open interest jumped to 20,467 contracts from 1,398 a day earlier.
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.”
Middle East Protests
Protests in Tunisia led to the ouster of President Zine El Abidine Ben Ali on Jan. 14 and Jordan’s King Abdullah replaced his prime minister on Feb. 1 after demonstrations. Thousands of Yemeni demonstrators gathered today in the capital Sanaa and police used tear gas in the port city of Aden.
“Egypt is the only thing that’s changed in the last week,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester Massachusetts. “Investors are betting on further trouble across the Middle East. The chances of a disruption in the big exporters is small, but there’s been unrest in smaller ones such as Yemen and Sudan.”