The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, surged Monday after Saudi Arabia detained an array of high-profile figures, including prices and former ministers.
Saudi Arabia is the largest producer and kingpin in the Organization of Petroleum Exporting Countries (OPEC). For its part, OPEC remains concerned about the level of production by U.S. shale producers and the cartel is urging its U.S. rivals to pare output to support prices. According to the Energy Information Administration, crude oil product could hit 9.9 million barrels per day in 2018, which surpasses the prior high reached in 1970 of 9.6 million barrels per day.
With its Monday surge, USO has posted a double-digit gain in the past month and with that run, the once-downtrodden oil fund is just 2% below a new 52-week high. Data suggest some traders are embracing the notion of more oil upside.
“By the numbers, 103,017 calls and 65,244 puts have changed hands on USO so far. This is nearly three times what’s typically seen at this point in the day, and volume is pacing in the 91st annual percentile,” reports Schaeffer’s Investment Research. “The January 2018 11-strike call is most active with 25,786 contracts traded, and it looks like traders may be liquidating positions here. This option was one of USO’s most heavily populated strikes heading into today’s trading, and data from Trade-Alert indicates new contracts were bought in late September for around $0.45-$0.47 apiece. At last check, the bid price for these calls was $0.74.”
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Overall, Saudi Arabia revealed the arrests of four ministers and 11 prices, including billionaire investor Prince Alwaleed bin Talal, who is well-known in the U.S. for his sizable stakes in companies including Apple Inc. (NASDAQ: AAPL) and Citigroup Inc. (NYSE: C).
Some oil market observers believe the arrests could usher in a new wave political volatility, a factor that often, albeit temporarily, lifts oil prices. The arrests come as Saudi Arabia is attempting to liberalize its markets to draw more foreign investment.
“Elsewhere, buy-to-open activity has been detected at the weekly 11/24 11.50-strike call. If this is the case, speculators are betting on USO making a decisive move north of $11.50 by expiration at the close on Friday, Nov. 24 — just ahead of the Organization of the Petroleum Exporting Countries (OPEC) Nov. 30 meeting,” according to Schaeffer’s.
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Tom Lydon’s clients own shares of Apple.