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Oil investors are buying options that will only pay out if crude breaks $100/barrel over the next four years—showing some believe another oil boom is on the way.
The deals are based on the belief that current low oil prices will create a supply crunch as oils firms cut funds for new field development.
"The market faces a supply crunch in the next 24 months," Bank of America Merrill Lynch head of commodities research Francisco Blanch tells Bloomberg. "Some hedge funds are betting that oil prices will need to rise sharply to bring demand down again—that’s why they are buying deep out-of-the-money call options.”
There are reasons to be skeptical of this view, as production outages in Canada may be temporary, and US shale production may ramp up again as prices rise. [Bloomberg]
