Reply #5: Hottest Oil Options Show 16% Drop as Demand Falls (Update1) [View All]

[ozymandius]

May 26 (Bloomberg) -- After oil passed $60 a barrel for the first time in six months, the New York Mercantile Exchange’s fastest-growing options trade in July is for a 16 percent drop.

The number of options to sell oil at $50 a barrel for July settlement rose 22 percent last week to 24,948. Traders expect prices to fall because U.S. crude inventories are 1.8 percent below the highest in two decades, and the International Energy Agency says demand is falling the most since 1981. There’s enough unsold crude stored in offshore tankers to supply the U.S. for a week, and oil fell below $60 today in New York.

Crude jumped as high as $62.26 a barrel on May 20 on optimism that the worst of the global recession and the Organization of Petroleum Exporting Countries agreed to cut supplies by the most on record. Now, economic reports are increasing speculation that the world economy will continue to sputter, and OPEC, which meets May 28 in Vienna, has yet to complete the supply curbs it promised in December.

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The number of contracts to sell July oil at $50 a barrel, or so-called put options, tripled to 24,948 on May 21 from May 7, according to Nymex data. The second most-popular contract for July settlement is the right to sell at $40, with 23,254 outstanding. There are almost twice as many positions that profit if oil falls as low as $40 a barrel as there are bets on a rise to $70.

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Industry-held inventories in the Organization for Economic Cooperation and Development were 2.75 billion barrels in March, 6.7 percent more than a year earlier, according to the Paris- based IEA. As much as 130 million barrels are stored offshore on 65 supertankers each the size of New York’s Chrysler Building awaiting buyers, according to the U.S. Energy Information Administration.

http://www.bloomberg.com/apps/news?pid=20601102&sid=am1tRsWVbKe4&refer=uk