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Fat-tail fears catch oil traders between $50 and $150 bets

13 December 2011 14:21 (UTC +04:00)

Investors and traders are buying large numbers of oil contracts that would profit from a price super-spike â€“ and a collapse.

In a rare and deep split of views, investors and traders are pricing in unusually large â€œfat tailâ€ risks â€“ low-probability events that have an outsize impact on prices â€“ for next year that could boost oil prices to $150 a barrel or push them to $50 a barrel.

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â€œWe face a bifurcated market: a crisis in the Middle East could send prices through the roof; the eurozone debt problems could trigger a collapse,â€ Seth Kleinman, head of energy strategy at Citigroup, said echoing a widely held view in the market.

The fear of abnormally large â€œfat tailâ€ risks has driven investors to buy insurance through options â€“ contracts that give holders the right to buy or sell crude oil at a predetermined price and date.