Bearish Bets on Brent Crude Surge to Record High as Supply Fears Ease

Bearish bets on Brent crude oil have surged to an unprecedented level, with traders piling into put options as concerns over supply disruptions begin to fade following a recent sharp price rally.

Record Options Volume

Preliminary data from ICE Futures Europe showed that trading volume for Brent put options reached a record of approximately 764,000 contracts on Tuesday. The activity signals a significant shift in market sentiment as investors reposition their portfolios.

A large portion of the trading was concentrated in narrow put spreads, which are often used to hedge other positions. The most active contracts included:

• Over 110,000 contracts of the December $70/$69 put spread.
• 40,000 contracts of the November $93/$92 put spread.
• 38,500 contracts of the February $70/$69 put spread.

Combined, these three trades accounted for more than half of the day's total volume, indicating a strong conviction among some market participants that prices are poised for a downturn.

Market Drivers and Context

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The surge in bearish positioning comes as supply fears, which recently pushed prices higher, show signs of abating. According to market reports, Saudi Arabia is working to restore oil flow through a key pipeline, and there are indications of diplomatic progress toward reopening the Strait of Hormuz.

The shift has already impacted prices. November Brent futures fell 1.1% on Tuesday to settle at $99.25 per barrel, a notable retreat after approaching the $110 level last week.

Shift in Technical Indicators

The changing sentiment is also reflected in key derivatives and technical indicators. The call skew, a measure of the cost of bullish options versus bearish ones, has fallen to its least optimistic level since June. This suggests that the cost to hedge against further price spikes has decreased.

Additionally, the 9-day Relative Strength Index (RSI) for Brent futures has moved out of overbought territory, where it had remained for most of the prior week. This technical signal suggests the recent upward momentum in the oil market may be fading.