To hedge against the risk of potential supply disruptions in the Middle East leading to price spikes, oil traders are holding a record number of options contracts.

This week, the open positions of Brent crude oil options have surpassed 4 million contracts for the first time, equivalent to 4 billion barrels. So far this month, the total number of positions held by traders has surged by over 25%.

The surge in oil options trading activity reflects traders hedging against the risk of disruptions in about one-third of the world's oil supply in the Middle East, while holding a pessimistic view on the market outlook for 2025.

Israel has announced retaliatory measures against Iran's missile attacks earlier this month and has launched a ground offensive against the Iran-backed Hezbollah in Lebanon.

In addition, the US election may introduce some uncertainties regarding the policies towards OPEC+ member countries Russia and Iran.

PVM's analyst Tamas Varga stated, "There is a common belief that the risk of betting on oil price trends using options is much lower than direct futures contracts. Geopolitical tensions in the Middle East and Ukraine, upcoming US elections, and significant divergences in future oil demand have all led to a volatile trading environment influenced by various headline news."

Measures to prevent surges in oil prices are also reflected in the way the oil market prices options contracts. The premium of near-month Brent crude oil call options relative to put options has now reached its highest level since March 2022 (shortly after the Russian invasion of Ukraine). Options contracts are also betting that the premium will continue over the next few months, indicating that traders currently expect a long-term threat to supply.

Jeff Currie, Chief Global Strategy Officer of the Carlyle Group, stated at the FT Energy Transition Summit in London on Wednesday, "The market does indeed believe that something could happen in the Middle East, a situation that is being digested in the options market."