Due to the ongoing conflicts in the Middle East, as well as uncertainties in the supply and demand outlook for 2025, crude oil prices have fluctuated significantly. In October, investors increased their trading volumes of crude oil futures and options to the highest level in history to hedge against the escalating uncertainty.

Hedging can help producers reduce risks by locking in crude oil prices to protect their production from the impact of large market fluctuations, and it can also allow traders to profit during volatile periods.

Intercontinental Exchange (ICE) data shows that the total volume of oil futures and options trading in October was 68.44 million barrels, exceeding the monthly record set in March 2020 when Brent crude oil futures prices plummeted by about $30 due to the global oil demand devastation caused by the COVID-19 pandemic.

Meanwhile, the Chicago Mercantile Exchange Group (CME) reported that on October 18, the single-day trading volume of weekly crude oil options reached a historic high of 58,132 contracts.

Aegis Hedging, a hedging company, with a client base accounting for approximately 25%-30% of the total equivalent of U.S. crude oil production, saw its trading volume reach a historic high in October, about 15% higher than the previous month's record.

Jay Stevens, Head of Market Analysis and Fundamentals at Aegis Hedging, stated, "Possible bullish unexpected events such as attacks on oil infrastructure can stimulate client trading activities and cause panic in the market."

In October, investors mostly awaited the response to the missile attack by Israel on Iran on October 1, fearing retaliation that could involve attacks on the country's oil infrastructure. Attacks launched by Israel weeks later bypassed Iran's oil facilities without disrupting energy supplies.

Analysts say this has reduced the geopolitical risk premium for crude oil, with Brent crude oil futures prices falling by about $4 per barrel in the following trading days.

In October, Brent crude oil prices fluctuated widely, ranging from $70 to $81 per barrel. LSEG data shows that Brent crude oil futures prices fell by 17% in the previous quarter, while WTI crude oil futures prices fell by 16%.

Jeff Barbuto, Head of ICE Global Oil Markets, said, "When futures prices become highly volatile due to geopolitical and other uncertainties, the market often sees options as a more effective way to manage risk."

In October, investors traded over 8.38 million barrels of Brent crude oil options on ICE, exceeding the record of 6.02 million barrels set in April 2024.

Weak demand.

Although geopolitical conflicts bring some price increase risks, traders also face the prospect of weak fundamentals for crude oil in 2025.

In a report last month, Tudor, Pickering, Holt & Co analyst Matt Portillo said the average price of WTI crude oil next year could be $65 per barrel, with prices potentially falling below $50 per barrel if OPEC+ increases production next year.

Peter Keavey, Global Head of Energy at CME, said, "The market is balancing supply and overall weak demand, with investors turning to the options market for hedging." He noted that last month, the average daily trading volume of WTI crude oil monthly options traded on CME jumped significantly by 38% year-on-year.

USA shale oil producer Coterra Energy stated in its third-quarter financial report that the company added new derivative contracts in October, having previously left most of this year's end and next year's production volume unhedged.

Coterra Energy, having already hedged 3.68 million barrels, added 0.305 million barrels of WTI crude oil hedge for the fourth quarter of 2024. In addition, the company also hedged 4.205 million barrels of WTI crude oil for 2025.

The uncertainty surrounding OPEC+ when to unwind its recent round of production cuts (2.2 million barrels per day) further heightened producer concerns last month and helped drive up hedging activities.

Stevens of Aegis stated, "The demand outlook for 2025 has become more bleak, with an expected oversupply.

OPEC+ finally agreed to postpone the planned production increase scheduled for December by one month. The organization announced last Sunday that due to weak demand from major consuming countries and increased supplies outside the group, this could continue to exert downward pressure on the oil market.