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Oil import bill set to swell on bullish bets

Total cuts through March 2020 would be 1.7 mbpd, Opec said on Friday.

, ET Bureau|
Last Updated: Dec 09, 2019, 08.16 AM IST|Original: Dec 09, 2019, 08.16 AM IST
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The price of the near month 65 strike call option jumped by 130% to $1.06 a barrel in the week through Friday as traders increased their outstanding positions, or open interest (OI), on the counter.
Mumbai: North Block’s money managers have a burning problem to deal with besides tepid growth — of likely higher oil import bills.

Oil traders on the US-based commodities exchange ICE believe Brent crude will test the 67 dollar per barrel mark in the short term, with Opec and its Russian partner deciding to reduce output by 0.5 million barrels to offset price declines caused by booming US production. Total cuts through March 2020 would be 1.7 mbpd, Opec said on Friday.

The price of the near month 65 strike call option jumped by 130% to $1.06 a barrel in the week through Friday as traders increased their outstanding positions, or open interest (OI), on the counter. A rise in the call options OI with the price indicates creation of bullish bets.

Simultaneously, the most active 63 put expiring on the 23rd of December saw a price decline from $3.09 a barrel Monday to a contract low of 85 cents Friday as the OI jumped.

A rise in OI of puts, along with falling prices, indicates creation of fresh bullish bets as traders don’t expect crude to crack below the strike minus premium received from the option buyers.

“The Opec+ cut could give a temporary reprieve to the bulls,” said Kishore Narne, associate director, Motilal Oswal Financial Services. “I’d say the price could rally $1-2 from the current price.”

Brent last traded at $64.39/bbl on Friday. ICE offers options on futures in crude, which for the next two weeks forecast a rise in prices.

The rise in crude could be a negative for listed stocks in the paints and aviation sectors, said Rajesh Palviya, derivatives head, Axis Securities.
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