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Record trading volumes driven by Middle East conflict,

2025

supply-demand concerns

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ICE, CME Group report record trading volumes in October

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OPEC+ production decisions, weak demand outlook influence

hedging activity

By Georgina McCartney

HOUSTON, Nov 5 (Reuters) - Investors ramped up oil

futures and options trading in October to record levels in a bid

to hedge growing uncertainty as war rages on in the Middle East

and a bearish 2025 supply and demand outlook looms, triggering

big swings in crude prices.

Hedging can help producers reduce risk and protect their

production from sharp moves in the market by locking in a price

for the oil. It can also give traders opportunities to profit in

times of volatility.

Some 68.44 million barrels of oil in futures and options

were traded in October, according to data from the

Intercontinental Exchange (ICE), surpassing the monthly record

hit in March 2020 when Brent futures plummeted roughly

$30 per barrel as the COVID-19 pandemic crushed global oil

demand.

CME Group, meanwhile, reported a single day volume record

for weekly crude oil options on Oct. 18, with 58,132 contracts

traded.

Aegis Hedging, which has a client base with a production

profile of about 25-30% of total U.S. barrels of oil equivalent,

saw the highest number of trades in October in the company's

history, jumping by around 15% above the previous monthly

record.

"Bullish surprises like possible attacks on oil

infrastructure are the sorts of events to spur activity among

clients and cause jitters in the market," said Jay Stevens,

director of market analytics and fundamentals at Aegis Hedging.

Investors spent much of October waiting on Israel's response to

an Iranian missile attack on Oct. 1, concerned a retaliation

could involve strikes on the country's oil infrastructure.

Israel's strikes some weeks later bypassed Iranian oil

facilities and did not disrupt energy supplies.

This shrank oil's geopolitical risk premium, analysts said,

with Brent crude futures tumbling by around $4 a barrel

the following trading day.

Brent traded within a wide range in October, with lows and

highs swinging between $70 and $81 per barrel. Last quarter,

Brent crude futures slid 17%, while West Texas Intermediate

crude futures fell by 16%, according to data from LSEG.

"When you see futures prices get very volatile because of

geopolitical and a range of other uncertainties, the market

often looks to options as a way to manage risk in a more

efficient way," said Jeff Barbuto, global head of oil markets at

ICE.

Investors traded more than 8.38 million barrels in Brent

options in October on the ICE, surpassing the April 2024 record

of 6.02 million barrels.

SLUGGISH DEMAND BALANCE

While geopolitical conflicts pose some upward price risk,

traders are also facing a weak fundamentals outlook for 2025.

West Texas Intermediate could average $65 a barrel next

year, with a downside of under $50 a barrel if the Organization

of the Petroleum Exporting Countries and allies (OPEC+) increase

production next year, Tudor, Pickering, Holt & Co analyst Matt

Portillo said in a note last month.

"The market is addressing the supply and generally sluggish

demand balance," said Peter Keavey, global head of energy at CME

Group. "(Investors are) really turning to the options markets to

hedge," he said, citing the sharp 38% year-on-year jump in

average daily volumes of WTI crude oil monthly options traded on

the CME last month.

U.S. shale producer Coterra Energy ( CTRA ), which has not

hedged a significant portion of its production through the end

of this year and next, said it added new derivative contracts in

October in its third quarter earnings report.

The company added an additional 305,000 barrels of WTI oil

hedges for the fourth quarter of 2024, on top of the 3.68

million barrels it already held. It added another 4.205 million

barrels of WTI oil hedges for the remainder of 2025.

Uncertainty around when OPEC+ would unwind its most recent

layer of output curbs, a cut of 2.2 million bpd, further stoked

producers' concerns last month and helped buoy hedging

activity.

"The outlook has turned sourer for 2025, with projected

oversupply," Aegis' Stevens said.

OPEC+ ultimately agreed to delay its planned December oil output

increase by one month, the group said on Sunday, as weak demand

notably from China and rising supply outside the group maintain

downward pressure on the oil market.