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Crude Oil & British Petroleum Q3

15-10-24

 

British Petroleum (BP) has fallen 4% today at market open, following an overnight dive in crude oil prices. An updated trading statement for Q3 2024 published last Friday warned of no increase in upstream production compared to the previous quarter. The UK’s leading oil producer noted in its memo; “Brent averaged $80.34/bbl in the third quarter 2024 compared to $84.97/bbl in the second quarter 2024.” Representing a 4.63% quarterly decrease in the international benchmark for black gold.

Despite rising tensions in the Middle East following Iran’s retaliatory ballistic missile attack on October 1st, Israeli Prime Minister Benjamin Netanyahu recently made a commitment to US President Biden to not attack ‘non-military sites’ including oil facilities, in order to avoid interfering in the upcoming US election.

Prior to the strikes on October 1st, records filed with the US Commodity Futures Trading Commission and ICE Futures Europe reported a near-record bearish positioning among fund managers in crude oil, as economic forecasts globally pointed to a renewed slowdown in manufacturing and consumption in the US, EU and China. Following the strikes, Brent Crude rose sharply from $72/bbl to a peak of $84/bbl, catching a number of market participants offside.

Citibank presents a base case for Brent Crude of $74/bbl for Q4 2024 following the news, maintaining a weak view of underlying oil market fundamentals; however, a bearish forecast of $60/bbl for Q4 has also been presented in the case of OPEC+ opting to raise production targets in December.

 

BP Share Price YTD

 

BP’s Q3 earnings are due on October 29th. Its share price has been depressed recently, down 17% year-to-date and 30% year-on-year; however, the equity remains a favourite among pension funds and retail investors owing to its 5.9% dividend yield.  

If you think that the demand outlook for crude will remain soft in light of weak global manufacturing and consumption data, and the prospect of increased production from the OPEC+ cartel in December may further depress prices; you may consider purchasing a put spread on the cash-settled Micro WTI Crude Oil contract. 

If you would like to learn more about trading crude oil futures and options, please contact the desk on 0207 466 5665.

Put Spread

buy 1 Micro WTI Jan25 (16-Dec-2024 expiry) 70 PUT @ 4.62
sell 1 Micro WTI Jan25 (16-Dec-2024 expiry) 63 PUT @ 1.92

Trade Idea

Put Spread 

Micro WTI Cash Price = $70.41 (as of 15/10/2024 @ time of writing 

+1 (contract) x $91.00(contract price) x 100 (contract size) = $462 debit 

-1 (contract) x $43.00 (contract price) x 100 (contract size) = $192 credit 

Total consideration of $270 (excl. fees + commissions) 

A retracement of ~10% to the $63 level by 16-Dec-2024 expiry would: 

  • Yield a 159% return on your initial investment, valuing the put spread at $700 (70 – 63 x 100) 
  • Yield a maximum profit of $430 per 1 lot ($700 – $270) (excl. fees + commissions) 

Maximum loss $270 per 1 lot (excl. fees + commissions) 

Defined risk profile, maximum loss is equal to the net option premium paid + commissions and fees. 

Put spreads allow you to reduce the initial outlay in exchange for a capped maximum profit. 

Written By

Sebastian Blanco

Desk Broker

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