Managing Oil Risk Around OPEC Meetings

Rudyard Kipling wrote in his famous poem, “If you can keep your head when others are losing theirs and blaming it on you, then you’ll be a man, my son.” Shocks from OPEC decisions can leave even the experts on the edge of their seats.

Short-dated options on crude oil are tailor made to address and manage such idiosyncratic risks helping each trader become a man of his own making.

OPEC’s 187th meeting will be held on 30th November. On 22nd November, OPEC announced that the meeting was going to be rescheduled from its original date of 25th November. This is not the first time that OPEC meeting is being postponed.

The 23-member OPEC+ alliance has competing interests which makes agreement among members difficult at times. Like last year, this time again, OPEC is rescheduling its meeting.

Such news impacts oil markets hugely. Prices tanked. Put option premiums spiked. Put volumes broke records. Implied volatilities jumped 8.5% over three days.


Not only was this meeting postponed but it will be held online instead of in-person. This is not the first time. This also occurred a year ago. It shifted its meeting online after fixing production targets at an in-person session in Vienna previously.

Rescheduling of meeting is reported to be due to disagreement over production quotas. Following this announcement, Brent crude prices tanked 5% but rebounded swiftly to trade 2.3% lower. WTI fell 2.6%.

As reported by Javier Blas of Bloomberg, deferment of OPEC production meeting stems from production quota arguments.

The Financial Times reported on 17th November that OPEC was considering an incremental one million barrels per day (bpd) reduction. This is in addition to previous production cut commitments from Saudi Arabia and Russia.

2024 is looking precarious for the OPEC. Feeble demand growth compounded by a backdrop of elevated supply growth. The possibility of the OPEC+ deal of production cuts imploding is small but cannot be ruled out. A failure to come to an agreement can leave the oil market with uncertainty ahead.


Equity and bond markets globally are in a celebratory mood on cooling inflation. Any shocks to the oil market could send inflation back up again. Refined fuel inventory levels look precariously low at levels unseen since 1982.

Diesel and Heating Oil Inventory Levels are precariously low (Source: Bloomberg)

Compounding low refined fuel inventory is the continued low levels of US Strategic Petroleum Reserves which are at a forty-year low.

US Strategic Petroleum Reserves continue to languish at 40-year lows


Crude prices are down about 20% from its September peak. Solid output from the US, and feeble indicators from China have sent oil prices cooling despite elevated geopolitical threats.

Since touching a high of USD 95/barrel on 28th September, prices have steadily declined with spurts of bear market rallies.

US West Texas Intermediate first continuous futures contract has traded exhibiting strong mean reversion for much of this year

Technicals point to near term overall weakness. Momentum indicators point to sharp sell down risks. Mean reversion indicators point to ambivalence with a neutral direction signal.

US West Texas Intermediate second continuous futures contract has traded exhibiting strong mean reversion for much of this year

Global oil markets are expected to move into surplus early next year, according to the International Energy Agency on slowing demand growth.


Pricing of options expressed by way of implied volatilities shows that puts have been more expensive than calls. As a result, the skews are supressed and hovering at 7-month lows.

Cost of options expressed in implied volatilities have shot up for puts relative to calls pushing skews down (Source: CME CVOL)

Inline with the behaviour observed in implied volatilities, charts below summarise the change in open interest between close of markets on 23rd November and 17th November.

Participants have been ramping up puts relative to calls except for options expiring on 29th November and 1st December .

Notwithstanding the positioning of traders and portfolio managers on near term options, options traders have a strong bullish position in longer term (going into latter part of December and next year) with put-call ratio at 0.63 implying five calls (bullish trades) for every three puts (bearish trades).

Open Interest across the forward curve shows higher number of calls relative to puts (Source: CME QuikStrike)

The brewing disagreements among OPEC members are impacting implied volatility on crude oil options. CVol index on crude oil jumped 15% over merely 3 days on the announcement of OPEC meeting postponement.

Volatility has been on the rise amid the ongoing lack of co-operation within the OPEC cartel (Source: CME QuikStrike)


The path ahead for oil prices looks uncertain. Volatility has spiked and could rise even higher on growing disagreement among OPEC members. If OPEC members go for deeper cuts, oil prices could rally. However, if the prisoner’s dilemma prevails, where OPEC majors continue pumping even more to flood the market, prices could tank.

Amid such ambivalence, CME’s short dated crude oil options are tailored to manage price risks. Benefits of these short-dated options were described in a paper previously published.

This paper posits an options strategy using the weekly crude oil option. OPEC is scheduled to meet on 30th November. A hypothetical trade is illustrated below using options expiring on 1st December.

A long strangle involves holding a long-call and a long-put option at different strikes but with the same expiry and underlying. Strangle on crude oil delivers gains when prices swing wildly. However, the strangle loses money if price moves remain muted. Pay-off from this hypothetical options strategy is illustrated below.

The long strangle requires USD 2.88/barrel (USD 1.47/barrel for long call at 75.5 and USD 1.41/barrel for long put at 74.5). CME Options Calculator can be used to arrive at the latest premium values at the specified strikes. The overall premium for the strangle represents approximately 3.8% of current oil price at $75 (indicative) and the trade breaks even at expiry when oil is either at $71.62/barrel or $78.38/barrel.


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As of EOD 27/11/2023, Change in Crude Oil options OI over the past week (from CME QuikStrike) shows the ambivalence and uncertainty in markets.

Change in Put/Call ratio over the past week for some contracts shows a bullish sentiment with more bullish bets (calls) over the past week.

Other near-term contracts show a bearish sentiment with more bearish bets (puts) over the past week.

As of EOD 28/11/2023, Change in Crude Oil options OI compared to 21st November when OPEC meeting was postponed.

On 28th, put OI increased more than call OI across all relevant expiries indicating bearishness.

As of EOD 29/11/2023, Change in Crude Oil options OI compared to 21st November:

Options market has turned starkly bearish with Put OI rising more than call OI across all relevant expiries. This is despite a 2% increase in the front month CL futures price on 29th.

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