Taps Coogan – November 7th, 2022

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With the ‘Russian oil price cap’ scheme looming in the next couple months, we present the following chart of WTI oil option calls vs puts, from Alessio.

Options traders have placed the largest net long bet on WTI in history… by nearly double.

A month ago we explained why we thought the ‘Russian oil price cap’ was a very bad idea. The punchline is that telling people that they can buy as much Russian oil they want for $60 a barrel would pretty obviously start exactly the sort of price war that OPEC was created to prevent and pull the price of oil from all exporters down.

OPEC+ (which includes Russia…) is not going to let that happen, has said so publicly, and has already started shock-and-awe production cuts to try and front-run that price war.

At the same time, the US has drained the Strategic Petroleum Reserve (SPR) to the lowest level since 1984 and… WTI is still over $90 at the time of writing. SPR releases are expected to end after the midterm elections and will be the equivalent of removing more than a ‘Libya’ sized amount of oil supply from market.

Oil traders are making their position on the ‘price cap’ scheme and SPR gimmick crystal clear via the chart above.

Ironically, the biggest risk to the oil bull case is how incredibly crowded the trade is getting. When positioning gets this one-sided, violent unwinds can happen for the slightest reason.

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