U.S. Oil Investors Rush for Protection at $35 as Doha Talks Collapse

 

Open interest in the June puts that allow the holder to sell at $35 per barrel hit a record high above 36,000, up 8 percent from Thursday and more than double levels seen in January.

 

Turnover in the contract, the most liquid on the massive U.S. options market, was high, too, with more than 10,000 lots traded by early afternoon, equivalent of 10 million barrels of oil worth about $370 million, as prices sank to as low as $37.61 per barrel.

 

"Whether it's a speculator or a hedger looking to put a floor in place, the $35 strike price makes sense," said John Saucer, vice president of research and analysis at Houston-based Mobius Risk Group.

 

"Given the fact that prices fell as low as $26.05, for people who think those lows might be retested, this gives them a little more wiggle room."

 

The meeting widely expected to result in a deal to freeze oil output by OPEC and non-OPEC producers fell apart on Sunday after Saudi Arabia demanded that Iran join in despite calls on Riyadh to save the agreement and help prop up crude prices.

 

While any agreement was not expected to accelerate the rebalancing of oil markets, analysts warned crude will remain under pressure as the possibility of coordinated action among OPEC and non-OPEC producers to rein in production has faded.

 

WTI could spiral toward as low as the $30 range in the near term, they said.

 

"The utter dysfunction within OPEC that this failure confirmed is a clear negative, in our view," Macquarie analysts said in a note.

 

However, the pace of selling ebbed later as traders turned their attention to a strike in Kuwait, which has slashed output by more than half.

 

Volumes in the $45 calls for June expiry breached 10,500 lots on Monday.

 

But prices will struggle to rally substantially while U.S. stockpiles are at record highs.

 

"I think we're going to see continuous builds (in inventory) over the next few weeks, so I think it's going to be hard to get up to that $45 level," said Tariq Zahir, oil trader and fund manager at Tyche Capital Advisors in Long Island, New York.