The speculative margin-call frenzy among traders on oil futures has intensified in the last few weeks as the market has plunged to multi-year lows over the concerns of a stronger dollar and the possibility of a free trade accord between the U.S. and China.
Oil prices have dropped nearly 10 percent in the last few months, and on Friday a range of options traded around January 20 hit by traders was recently at the highest it has been since 2009, according to Bloomberg. One option was betting that oil would fall to below $50.
Traders have used the widening gap between the price of crude oil and what traders call the “call option,” which asks them to buy stock at a certain price by Jan. 20. The calls more than tripled last year, and crude oil is now more than $10 lower than those contracts currently trade.
One possibility is that the market is beginning to price in a U.S.-China trade war. A head of the Organization of Petroleum Exporting Countries, Ahmad al-Fahim, said at a conference earlier this week that oil prices could drop if trade tensions between the U.S. and China escalated and pushed oil prices below $50.
The price for WTI crude oil has dropped to as low as $30.63 per barrel at the end of trading on Friday, making it the lowest oil price since 2009.
The plunge of oil prices, which has coincided with the swoon of the dollar in the last few months, has caused energy companies’ shares to suffer.
Shares of ConocoPhillips, Exxon Mobil, BP and other oil companies have all fallen. Shares of Brink Oil, an oilfield services company that has a big chunk of its revenues from oil production in Canada, is down more than 51 percent in the last two months, and its stock is now trading at about one-fifth of its value from a year ago.
Covidien, the medical supplies company, was one of the companies that got hit in the stock market last year. Shares traded at $125 at the beginning of the year, but now trade in the $91 range.
Read the full article at Bloomberg.
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