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By Samuel R. Avro on Nov 26, 2008 with no responses

Options Traders Bet February Oil Will Fall Below $25


Oil traders placed bets that crude oil for February delivery will collapse to below $25 a barrel as economies around the world slide more deeply into recession, cutting energy demand.

February $25 puts, the seventh-most actively traded option, rose 8 cents to 10 cents a barrel, or $100 a contract, at 4:19 p.m. on the New York Mercantile Exchange. A total of 184 lots traded, up from none yesterday. Earlier in the day, it was the most actively traded option. The puts fell 1 cent to 1 cent at 5:14 p.m.

“It’s a lottery ticket,” said James Cordier, portfolio manager at in Tampa, Florida. “It’s somebody making a bet that crude oil is going to crash in the next six weeks.”

Crude oil futures have dropped 53 percent in the past three months, dropping below $50 a barrel last week, as a credit squeeze pushed economies into recession and reduced demand for petroleum products. Orders for U.S. durable goods fell twice as much as forecast in October, the Commerce Department said today.

The Organization of Petroleum Exporting Countries, producers of more than 40 percent of world oil, will reduce output before the end of the year to stem the decline in price, according to 18 of 21 analysts surveyed by Bloomberg. The group is scheduled to meet in Cairo on Nov. 29 and in Algeria on Dec. 17.

“If OPEC doesn’t get ahead of the curve, those $25 puts are going to start to look interesting,” said Dominick Chirichella, a senior partner at the Energy Management Institute in New York.

Article continues… Bloomberg