Traders bet on US$30 oil as Opec plans talks on output By Margot Habiby

14-11-2008:- Traders bet on US$30 oil as Opec plans talks on output
By Margot Habiby



DALLAS: Oil traders made their biggest bet yet that the Organisation of Petroleum Exporting Countries (Opec) will fail to prevent crude prices from plunging below US$30 (RM108) a barrel.

Trades in crude-oil options contracts that would allow the holder to sell oil for February delivery at US$30 a barrel reached 1,407 on the New York Mercantile Exchange yesterday, making the contract the day's second-most active, exchange data show.

Opec, the supplier of about 40% of the world's oil, plans to meet Nov 29 in Cairo to discuss another output cut after crude oil touched US$54.67 a barrel, a 21-month low, yesterday. The 13-member organization cut production by 1.5 million barrels a day at a meeting in Vienna last month.

"Somebody is buying a little bit of insurance with a very deep out-of-the-money put option," said Tim Evans, an energy analyst with Citi Futures Perspective in New York. "It's very exciting to think about US$30 oil, but are we going there? Most likely not."

The February US$30 put contract fell nine cents to settle at 11 cents yesterday after trading as high as 45 cents, or US$450 per contract, according to data compiled by Bloomberg. It hadn't traded as of 10.15am Sydney time. The contract was yesterday's most active after December US$55 puts, which dropped as futures prices rallied. December options expire Nov 17.

Open interest on the exchange for the US$30 February put options was one contract, or 1,000 barrels of oil, Nov 12, according to Bloomberg data.

Crude oil for December, the contract closest to delivery, rose as much as US$1.72, or 3%, to US$59.96 a barrel on the New York Mercantile Exchange. It was at US$58.53 a barrel at 11:07 a.m. Singapore time. Prices have tumbled 60% from a record US$147.27 on July 11.

Oil for February delivery was at US$60.11 a barrel, up 11 cents, at 9.59am Singapore time.

"The person who's buying those February puts right now, all they need is one spike down for it to be profitable," said Ron Madden, a broker/trader with Alaron Trading Corp in Chicago.

Options prices typically increase as the futures market approaches the strike price, so a US$30 put option would become more valuable to a trader who bought it yesterday if the crude price falls, Madden said.

"It doesn't need to touch US$30," Madden said. "That person might see it profitable if crude touches US$50. The sooner happens, the quicker those puts are going to make a profit."

Opec's Cairo meeting will be held in conjunction with a scheduled annual assembly of the oil ministers of the Organiaation of Arab Petroleum Exporting Countries.

Non-Arab members of Opec, including Venezuela, Iran and Angola, will be invited to participate in talks about the oil market after the Opec meeting, Chakib Khelil, OPEC's president, told Algerian radio yesterday. -- Bloomberg