Two big trades in oil options worth nearly $60 million last week boosted volatility in that market and revived speculation among traders that U.S. producers are placing hedges to guard against another price rout this fall.
Hedging for future production now is prudent, some said, as trading ahead looks to remain rangebound. However, dealers said bearish fears have been revived because supply is due to swell when refineries start fall maintenance just as a slug of imports is due to hit the U.S. Gulf Coast.
The two sizeable puts, equivalent to almost 1 million barrels of crude, expire in November next year and give the holder the right to sell at $53 per barrel if prices drop lower than that, according to data from the Depository Trust & Clearing Corp (DTCC).
The identity of the buyers was not known. Traders and bankers said the deals bore the hallmarks of Mexico’s finance ministry and its national oil company Pemex. The Mexico hedging program is the most widely-watched operation by a nation in commodities markets.
Mexico’s finance ministry declined to comment on the hedges.
After nearly two months of rangebound oil prices and lackluster trading, other drillers also have started to do more hedging, trying to lock in prices and protect revenue for output next year and even 2017, four sources familiar with the money flows said.