The Scramble to insure against more oil price rises  

The FT has a look at the "Scramble to insure against more oil price rises".

Energy consumers and speculators are scrambling to take out options contracts to insure themselves against oil prices rising above $100 a barrel – a further sign of growing expectations of a spike in the crude market.

Some have even taken out contracts to protect themselves against prices rising to $250 a barrel in the next two years. The buying frenzy has been “extraordinarily” strong in the past week as oil prices rose to a record high of $96.24 a barrel, according to traders and bankers. “Options calls of strikes well over $100 a barrel are being bought by the thousands,” said Nauman Barakat of Macquarie Futures in New York.

The strong flows in call options – contracts that give the right to buy at a predetermined price and date – are boosting short-term oil prices as the banks that sell them have to hedge some of their positions by buying crude oil in the spot market.

There has already been a sharp increase in the number of outstanding options contracts, or “open interest”, at the New York Mercantile Exchange. This represents only a fraction of the overall market, which is concentrated on over-the-counter deals.