Airlines and Shippers Pounce on Oil Plunge to Lock in Prices
(Bloomberg) -- With crude prices plunging below $60 a barrel, consumers who count fuel as their single biggest expense are rushing to lock in supplies.
More than 25 million barrels of options contracts on the Brent benchmark traded in structures that protect buyers from price gains this week. The activity reflected consumer hedging that allows airlines, truckers and shipping companies to lock in lower fuel costs, according to people involved in the market.
Industrial consumers of oil often use derivatives to manage exposure to their single largest cost. Benchmark Brent crude futures have dropped more than 20% in the past week, with the US and China exchanging demand-sapping tariffs just as OPEC+ prepares to boost supply by more than previously anticipated. That's made locking in crude for 2026 more attractive than at any time in the past three years.
'Quite a few of our clients have been running a low hedge ratio on the consumer side and have used the selloff to get closer to their benchmark hedge ratio,' said Arne Lohmann Rasmussen, chief analyst at A/S Global Risk Management. 'A few have said they have been waiting for this setback.'
The upturn in activity led to call option volumes climbing to their highest level since October earlier this week. Back then, direct attacks between Iran and Israel sparked a flurry of consumer activity.
For some consumers hedging has been a divisive activity. While it offers protection against surging costs, it can at times be expensive and can lead to large losses on paper.
Earlier this year Southwest Airlines Co. said it would end its long-held policy of locking in prices — one that has in the past saved it billions of dollars — citing the cost of buying such contracts.
The uptick in consumer hedging also shows up in some of the moves on the oil futures curve. Brent for December 2026 is now trading a dollar higher than the equivalent contract for 2025, a sign that nearer prices are falling faster than later ones.
The initial burst of hedging activity occurred earlier this week, before a fresh collapse in prices on Wednesday. Brent futures slid close to 7% below $59 a barrel at their lowest point.
'Clearly consumers are coming in to hedge on the back of sharply lower prices,' said Helge Andre Martinsen, senior oil analyst at DNB Bank ASA. 'If the macro becomes too shaky then some consumers get nervous about demand for their products, which could impact hedging behavior.'
More stories like this are available on bloomberg.com
©2025 Bloomberg L.P.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
8 hours ago
- Yahoo
Analysis-OPEC+ would struggle to cover major Iranian oil supply disruption
By Ahmad Ghaddar and Seher Dareen LONDON (Reuters) -Oil market participants have switched to dreading a shortage in fuel from focusing on impending oversupply in just two days this week. After Israel attacked Iran and Tehran pledged to retaliate, oil prices jumped as much as 13% to their highest since January as investors price in an increased probability of a major disruption in Middle East oil supplies. Part of the reason for the rapid spike is that spare capacity among OPEC and allies to pump more oil to offset any disruption is roughly equivalent to Iran's output, according to analysts and OPEC watchers. Saudi Arabia and the United Arab Emirates are the only OPEC+ members capable of quickly boosting output and could pump around 3.5 million barrels per day (bpd) more, analysts and industry sources said. Iran's production stands at around 3.3 million bpd, and it exports over 2 million bpd of oil and fuel. There has been no impact on output so far from Israel's attacks on Iran's oil and gas infrastructure, nor on exports from the region. But fears that Israel may destroy Iranian oil facilities to deprive it of its main source of revenue have driven oil prices higher. The Brent benchmark last traded up nearly 7% at over $74 on Friday. An attack with a significant impact on Iranian output that required other producers to pump more to plug the gap would leave very little spare capacity to deal with other disruptions - which can happen due to war, natural disasters or accidents. And that with a caveat that Iran does not attack its neighbours in retaliation for Israeli strikes. Iran has in the past threatened to disrupt shipping through the Strait of Hormuz if it is attacked. The Strait is the exit route from the Middle East Gulf for around 20% of the world's oil supply, including Saudi, UAE, Kuwaiti, Iraqi and Iranian exports. Iran has also previously stated that it would attack other oil suppliers that filled any gap in supplies left due to sanctions or attacks on Iran. "If Iran responds by disrupting oil flows through the Strait of Hormuz, targeting regional oil infrastructure, or striking U.S. military assets, the market reaction could be much more severe, potentially pushing prices up by $20 per barrel or more," said Jorge Leon, head of geopolitical analysis at Rystad and a former OPEC official. CHANGE IN CALCULUS The abrupt change in calculus for oil investors this week comes after months in which output increases from OPEC and its allies, a group known as OPEC+, have led to investor concern about future oversupply and a potential price crash. Saudi Arabia, the de facto leader of OPEC, has been the driving force behind an acceleration in the group's output increases, in part to punish allies that have pumped more oil than they were supposed to under OPEC+ agreements. The increases have already strained the capacity of some members to produce more, causing them to fall short of their new targets. Even after recent increases, the group still has output curbs in place of about 4.5 million bpd, which were agreed over the past five years to balance supply and demand. But some of that spare oil capacity - the difference between actual output and notional production potential that can be brought online quickly and sustained - exists only on paper. After years of production cuts and reduced oilfield investment following the COVID-19 pandemic, the oilfields and facilities may no longer be able to restart quickly, said analysts and OPEC watchers. Western sanctions on Iran, Russia and Venezuela have also led to decreases in oil investment in those countries. "Following the July hike, most OPEC members, excluding Saudi Arabia, appear to be producing at or near maximum capacity," J.P. Morgan said in a note. Outside of Saudi Arabia and the UAE, spare capacity was negligible, said a senior industry source who works with OPEC+ producers. "Saudi are the only ones with real barrels, the rest is paper," the source said. He asked not to be named due to the sensitivity of the matter. PAPER BARRELS Saudi oil output is set to rise to above 9.5 million bpd in July, leaving the kingdom with the ability to raise output by another 2.5 million bpd if it decides to. That capacity has been tested, however, only once in the last decade and only for one month in 2020 when Saudi Arabia and Russia fell out and pumped at will in a fight for market share. Saudi Arabia has also stopped investing in expanding its spare capacity beyond 12 million bpd as the kingdom diverted resources to other projects. Russia, the second largest producer inside OPEC+, claims it can pump above 12 million bpd. JP Morgan estimates, however, that Moscow can only ramp up output by 250,000 bpd to 9.5 million bpd over the next three months and will struggle to raise output further due to sanctions. The UAE says its maximum oil production capacity is 4.85 million bpd, and told OPEC that its production of crude alone in April stood at just over 2.9 million bpd, a figure largely endorsed by OPEC's secondary sources. The International Energy Agency, however, estimated the country's crude production at about 3.3 million bpd in April, and says the UAE has the capacity to raise that by a further 1 million bpd. BNP Paribas sees UAE output even higher at 3.5-4.0 million bpd. "I think spare capacity is significantly lower than what's often quoted," said BNP analyst Aldo Spanjer. The difference in ability to raise production has already created tensions inside OPEC+. Saudi Arabia favours unwinding cuts of about 800,000 bpd by the end of October, sources have told Reuters. At their last meeting, Russia along with Oman and Algeria expressed support for pausing a hike for July. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Miami Herald
10 hours ago
- Miami Herald
Everyone should keep an eye on this Persian Gulf island
Kharg Island is a small island in the Persian Gulf. It lies 16 miles off the northwest coast of Iran. It's 451 miles from Tehran, Iran's capital - roughly the distance from Detroit to New York City. It is just five miles long, about 40% the size of New York's Manhattan Island. And 125 from Iran's border with Iraq. Don't miss the move: Subscribe to TheStreet's free daily newsletter It is also unique in the Persian Gulf. The island's limestone foundation allows it the luxury of fresh water reserves. Most importantly it also is the key port that exports Iranian crude oil. About 90% of Iran's oil exports flow through Kharg's terminal complex. And about a third of those exports go to China. Related: Stock Market Today: Attacks in Middle East Batter Stocks; Oil and Gold soar; Bitcoin Off Kharg could prove to be one of two key strategic places if the Israeli-Iran War (let's call it that for now) spins out of control. The other is the Strait of Hormuz, 21 miles wide at its narrowest, same as the English Channel. About a third of the world's liquified natural gas and 25% of its crude oil must pass through the strait to pass from the 615-mile Persian Gulf to reach buyers in Europe, Asia and elsewhere. Giant oil tankers with oil and natural gas from Iran, Iraq, Saudi Arabia, the United Arab Oman and Abu Dhabi, Qatar and Bahrain flow though the strait Iran is the northern side of the strait, Oman on the southern. For years, whenever there's a conflict involving Iran, there are fears the country might block the strait. The importance of Kharg and the Strait of Hormuz helps explain why crude oil prices shot up as much as 14% late Thursday on the very first reports of Israel's attack on Iranian military and nuclear facilities. Related: Tesla makes a desperate move as it continues to lose customers Ultimately, West Texas Intermediate, the benchmark U.S. crude closed Friday up 7% to $71.29, and Brent, the benchmark global crude, was up the same amount to $74.23. If the worst of the conflict scenarios come to pass - Kharg's terminals and the strait are shut down, all bets are off on oil prices and, by extension, natural gas and gasoline prices. Kharg's terminal were blown up during the Iraq-Iran War of 1980-1988. If it happened again, Reuters reported, some analysts were suggesting crude prices could top $120 a barrel or higher, which would send gasoline prices much higher, maybe up to the top U.S. average price of $5.22 a gallon in May 2022. Global economies would be disrupted, and inflation would almost certainly jump. AAA's daily U.S. average gasoline price was up a penny to $3.133 a gallon on Saturday. The price is up just 3.1% so far in 2025.U.S. oil and gas stocks jumped on the Israeli-Iran news Friday. The Energy Sector of the Standard & Poor's 500 Index was alone among the 11 sectors of the index to post a gain for the day. Related: Starbucks CEO admits the struggling chain made a major mistake The Energy Select Sector SPDR exchange-traded fund (XLE) , which matches the index's Energy Sector, was up 1.7%. Oil services giant Halliburton (HAL) was up 5.5%. APA Corp. (APA) , parent of oil-and-gas producer Apache, was up 5.3%. The S&P 500 was down 1.13%. The Dow Jones Industrial Average, down as many as 887 points in the afternoon, finished with a 700-point loss, or 1.8%, to 42,198. The major stock indexes - Dow, S&P 500, Nasdaq Composite, Nasdaq-100 and Russell 2000 - all finished lower on the week. More Economic Analysis: Hedge-fund manager sees U.S. becoming GreeceA critical industry is slamming the economyReports may show whether the economy is toughing out the tariffs That said, many analysts do not believe things will get that out of hand. Similar worries about Kharg and the Strait of Hormuz have generated similar worries and price projections. But, in a note on Friday, Amarpreet Singh, an analyst with Barclay's, said "cool heads have prevailed." Moreover, as Ian Bremmer, president of the Eurasia Group, a consulting firm that watches matters like these, thinks Iran has few cards to play in this conflict. Israeli intelligence capabilities are just too capable, he said on a podcast, and Iran's military capacity has been diminished substantially by the attacks this week. Still, attention must be paid. Most definitely. Related: Veteran fund manager issues dire stock market warning The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Yahoo
12 hours ago
- Yahoo
Litecoin Price Struggles Despite ETF Optimism as War Tensions Rattle Market
Litecoin LTC fell more than 4.3% over the past week, and is down more than 14% for the last 30-day period, with the latest sell-off coming as part of a wider risk asset sell-off. That sell-off came after Israel attacked Iran in a bid to put an end to its nuclear program and harm its missile capabilities, and Iran later retaliated with a salvo of missiles. The conflict has spooked global markets, reducing the total cryptocurrency market capitalization by more than $150 billion. LTC was severely affected by the sell-off. As the dust settled, Litecoin attempted a fragile rebound, climbing back above $86. But the recovery has stalled under mounting technical resistance. The $97.80 level, coinciding with the 23.6% Fibonacci retracement according to to CoinDesk Research's technical analysis data model, has proven difficult to breach. Momentum indicators like RSI at 43.46 and a flat MACD histogram show limited energy behind the move, suggesting a phase of consolidation. Volume tells a similar story. Litecoin's trading activity dropped 42% following the initial plunge, even as it briefly surged through the $85.90 resistance level during a high-volume spike late Friday. That breakout, however, was quickly met with profit-taking that brought it back down to $85. Looming in the background is hope for a spot litecoin ETF. Bloomberg ETF analysts Eric Balchunas and James Seyffart estimate a 90% chance of approval. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
