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Crude Awakening: Prices Soar Amidst Saudi Announcement

03-04-2023

Oil prices surged as much as 8% at the open after OPEC+ announced it was slashing output by 1.16 million barrels per day.

Brent crude futures jumped 5.07% to $83.95 a barrel on that news, and U.S. West Texas Intermediate crude futures soared 5.17% to $79.59 a barrel.

The voluntary cuts will start from May to end 2023, Saudi Arabia announced, saying it was a “precautionary measure” targeted toward stabilizing the oil market. This surprise cut has brought oil back into focus with many market commentators suggesting we could see oil at $100 dollars a barrel.

This view is being bolstered by the reopening in China and the fact that their demand could well go back to the 16 million barrels a day in the second half of the year. If you are bullish crude and want to take advantage of this the following option trades can be used. 

Buying a Call Option

WTI Crude at 80.43
buy 1 June 80 call at $4.20

Suggested Trade

If you believe the price will rise

Cost of trade $4,200*

(*$1000 per $ $4.2x 1000 $4,200)

Alternatively, you could buy a call spread to reduce the cost of the trade, but one thing you have to consider is you cap your upside by selling the call in the spread.

Buying a Call Spread

WTI Crude at 80.43
buy 1 June Crude oil 80 call at $4.20
sell 1 June Crude oil 90 call at $1.20

Suggested Trade

If you think the market has a chance of rising but at the same time have a target in mind for how far the stock will go

Cost of trade $4,200 – $1200= $3,000*

(*$1000 per $ $4.20x 1000 $4,200)  

(*$1.20x 1000 $1,200 )

Written By

Alex Mitchell

Alex Mitchell

DESK BROKER

Important information: Derivative products are considerably higher risk and more complex than more conventional investments, come with a high risk of losing money rapidly due to leverage and are not, therefore, suitable for everyone. Our website offers information about trading in derivative products, but not personal advice. If you’re not sure whether trading in derivative products is right for you, you should contact an independent financial adviser. For more information, please read our Important Derivative Product Trading Notes.

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