Suddenly, Oil Below $40 a Barrel Doesn't Seem so Far-Fetched

(Bloomberg) -- It's come to this for the beleaguered oil market: a big bet that prices are about to sink to their lowest level in more than a year.

About $7 million worth of options changed hands Friday that will pay off if West Texas Intermediate crude falls beneath $39 a barrel by mid-July, according to data compiled by Bloomberg. WTI, which hovered around $46 Friday, hasn't traded below $39 since April 2016, though it's been dropping like a stone in recent weeks.

More than 14,000 August $39 puts changed hands, almost 20 times the number of contracts previously outstanding for the bearish option. 

The trade was a sign of the “crescendo of negativity" that's washing over the oil market, said James Cordier, founder of investment firm Optionsellers.com in Tampa, Florida.

Prices have plunged about 13 percent in the last three weeks, amid fears that OPEC-led production cuts aren't doing enough to stem a global supply glut. For Friday's bet to work, prices would have to match that drop in the next few weeks, during a time when summer driving typically pushes demand higher, Cordier said by telephone.

“That's just a huge speculative bet that tells me that the fear is at its heights and we'll probably see oil recover," he said. “It's a hell of a lottery ticket that the market's going to keep falling."

--With assistance from Michael Roschnotti

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net.

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Reg Gale at rgale5@bloomberg.net, Carlos Caminada