Market News

Open interest in calendar spread options — the difference between West Texas Intermediate crude’s value over different delivery months — this week reached a record high, according to CME Group. The Commodity Futures Trading Commission’s latest report shows that speculators hold the biggest net position wagering on a weaker US crude futures curve since 2020.

Oil traders are grappling with a host of major market drivers, from President Donald Trump’s tariff war against some of the US’s largest trade partners to an OPEC+ decision to add more barrels back to the market than was previously expected. On the flip side, there are also persistent geopolitical concerns looming over output from Russia to Iran and Venezuela.

Those headline risks have made taking relatively cheap wagers on the structure of the forward curve more attractive, particularly with a glut expected to emerge later this year. At the same time, though, in the here and now markets remain robust, meaning not all of the flows have been betting on lower prices. It reflects the unusual “hockey-stick” shape of the curve, where the market appears to be pricing tight supply through the end of 2025, then an oversupply next year.

“There is a lot of risk in the trade,” said Nicky Ferguson, head of analytics at Energy Aspects Ltd. Rising activity has been driven by “strong prompt, weak deferred balances, and a very changeable geopolitical environment that makes holding futures difficult.”

The WTI July-August spread weakened 3 cents Thursday to $0.93 a barrel as of 10:21 a.m. New York time, while December 2025-December 2026 was 10 cents stronger at $0.53.

Some of the biggest bets would benefit from a collapse in the curve at the end of this year. Against that, in recent days buying of nearby contracts that would profit from a spread of more than $1 have helped propel the US benchmark’s prompt timespread higher.

The large positions could accelerate sudden moves in the intermonth spreads if dealers who have sold options need to re-balance their books by buying into rallies or selling into declines.

“The current backwardation in the front of the crude oil futures curve is a result of low inventory balances observed since the beginning of the year,” Bank of America analysts including Irina Shaorshadze and Francisco Blanch wrote. “In contrast, the contango further out on the curve suggests the market anticipates future slack due to OPEC’s planned supply increases and a broader deceleration of the global economy.”

It’s not just options bets on the US crude futures curve that are taking off. Similar contracts that wager on the structure of Europe’s diesel benchmark also currently have record open interest of about 180,000 contracts, Intercontinental Exchange Inc. said, underscoring the attraction of using such contracts to avoid headline risks.

Calendar spread options can serve multiple purposes. While some traders use them as relatively cheap ways of gaining exposure to shifts in the futures curve, others tend to trade them as a hedge for large futures positions, effectively limiting losses should those trades go wrong, people involved in the market said.

“It provides unique leverage for speculators that no other assets can,” said Ilia Bouchouev, a managing partner at Pentathlon Investments who also teaches at New York University, and while at Koch Industries in the 1990s was part of a team that pioneered such contracts as replicas for a physical storage facility. “When the market has a 9/10 chance of status quo and 1/10 of a massive explosion, the demand from buyers jumps and they are willing to overpay more to gain such leverage.”

This story was produced with the assistance of Bloomberg Automation.

(Updates with current spread prices in sixth paragraph, updates charts with latest data)