Options in Oil and Inflation Narratives

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Options in Oil and Inflation Narratives

By Blu Putnam, Chief Economist
Erik Norland, Senior Economist
CME Group

Oil in Backwardation

  • ​Reopening of economies lifts WTI oil prices above $70/barrel.
  • Oil market in backwardation, with demand expectations rallying spot prices.
  • Options open interest rising for strike prices at $100 or higher.
  • Could oil prices rise to $100 amid demand outstripping supply?
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The Uncertain Path of Inflation

  • ​​​Fed banking on rising inflation being fueled by temporary factors.
  • Counternarrative is that stimulus has caused demand to outstrip supply.
  • Bonds siding with Fed for now, pricing inflation at 2.8% over next decade.
  • Bond yields are at risk of rising if inflation does not subside.
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