(Bloomberg) -- Traders are paying the biggest premium in more than two years to bet on higher oil prices as Russia's invasion of Ukraine extends crude's relentless rally.
International benchmark Brent surged above $106 a barrel and U.S. crude futures surpassed $104 for the first time since 2014 on concern that sanctions on Russia will curb supply from one of the biggest global producers at a time when inventories across the world are already low.
The soaring premium underscores the magnitude of bullish sentiment in the oil market. Energy analysts and traders have said full-fledged sanctions on Russian oil exports could lead to oil prices rising to more than $120 a barrel over the coming months.
The rally has been further goosed by a wave of buying from banks and dealers that sold call options months ago when futures were far lower. The firms need to buy back the calls or purchase futures to cover their positions as prices rise.
The second-month call skew, which shows how much more traders will pay for options that profit from a rise in prices versus a decline, increased to 7.9 points from flat on Feb. 18, according to data compiled by Bloomberg. It's a major shift from the norm, where puts are typically in greater demand as producers seek to protect against a drop in prices.
The skew jump comes as overall options costs are rising. Implied volatility in May Brent futures surged more than 15 percentage points Tuesday to 68%.
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