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?

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.