On Friday, oil prices rose again after reports of Israel's counterattack against Iran, but futures prices eventually fell and there was little change at the close.

This shows that traders believe that regional tension will not soon turn into a conflict that disrupts global oil supply, at least for now.

But that's just one side of the story. Crude oil prices showed the biggest fluctuation in months during the session last Friday. In the options market, speculators are snapping up contracts at record speed in order to profit from rising futures prices.

Crude oil call options trading volume hits record high

All of this portrays the crude oil market's optimism about chaos in the short term, but this view can change at any time.

“Although it is difficult to assess whether this is a temporary episode or the beginning of a new escalation in the conflict between Iran and Israel, initial market reactions suggest that the former is more likely,” said Jorge Leon, an analyst at consulting firm Rystad Energy.

However, even if the price of Brent crude oil remains between $85 and $90 per barrel, the risk of crude oil is beginning to attract global attention. A senior International Monetary Fund official warned on Friday that there could be a serious oil shock.

Traders are now pouring into the options market—where they can buy at relatively cheap prices to prevent price spikes and even reap wealth returns.

Trading volume for Brent's bullish options surged to record levels last week. The premium for call option contracts is still high compared to put options, although the premium has been reduced in recent days. This indicates that there are people in the market preparing for a rebound.

The total amount of Brent crude oil call options held by traders has reached the highest level since 2020, and more call options with an execution price of $110 over the next 12 months are greater than any other contract. There are even bullish options with an execution price of $150 or more, which indicates that some market participants are betting on a sharp rise in oil prices, or to protect themselves in the event of a sharp rise in oil prices. They believe that oil prices may even surpass the level of surge after the Russian-Ukrainian conflict first broke out.

Nathan Sheets, Citigroup's global chief economist, said, “The problem with the geopolitical challenge is that you have to seriously consider tail risk. The key question is the focus of market attention, and that is: What impact will this have on the global economy? What impact will this have on oil supply?”

Even before the situation in the Middle East worsened, oil prices remained strong. OPEC+ draws around 2 million barrels of supply from the market every day, and analysts have also generally raised their forecasts for global consumption this year.

However, some reaction to last week's slump in oil prices came amid signs of weak demand. Fuel premiums such as diesel and naphtha have declined, and the prices of some spot crude oil grades are not as strong as they were a month ago.

Another factor holding back oil prices is a relatively large buffer of remaining production capacity, which is partly due to ongoing production cuts by OPEC+. The International Energy Agency warns that as production outside of OPEC+ continues to rise, the organization could soon have one of the biggest supply buffers ever. This has limited the increase in oil prices.

However, as of now, oil prices are still very unstable.

Brent crude oil futures continued to fluctuate within the largest intraday fluctuation range since November last Friday, leaving traders in a waiting mode again — waiting for Israel and Iran's next steps.

International Monetary Fund First Vice President Gita Gopinath (Gita Gopinath) said, “If the situation escalates seriously, which means an escalation of a broader regional conflict than we have seen so far, then we may face a serious oil shock. But we're not there yet.”