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Upside risks for Brent increase

OIL OPTIONS

Brent option market suggests increased upside risks as flat price has rallied

  • Brent futures have traded higher on tight supply and potential for Chinese demand recovery once they exit covid restrictions.
  • Since the start of the week call option volatility has strengthened. On 13th May the Jun22 contract puts were trading as much as 5.7% higher than calls as the market focus was bearish on demand fears. Since then, calls have come back closer to parity with puts only 0.8% higher.
  • Aug22 calls and puts are now trading at almost the same volatility level and Dec22 calls are back at a premium of 1% over.
  • With market uncertainty high the ATM implied vols are still trading over 50% compared to levels below 40% at the start of the year.
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