Saudi Arabia: Turbulence on the Horizon?

November 29, 2017 8:18AM CST

By Erik Norland, Senior Economist, CME Group

Highlights

  • Oil market unfazed by Saudi Arabia’s ambitious reform plans
  • Princes, billionaires and officials arrested in anti-corruption drive
  • Any backlash could cause instability in Saudi oil-rich Shiite regions
  • U.S. oil companies potential winners if Saudi supply is disrupted

There is considerable change underway in Saudi Arabia, from how the country is governed and managed to an even more activist role in the politics of the volatile Middle East. Options markets, however, appear to be almost entirely unconcerned about recent developments in the country, the world’s largest exporter of crude oil and a key U.S. ally in the Middle East.

At-the-money implied volatility on West Texas Intermediate (WTI) Crude Oil options has been trading near its lowest point since late 2014 and is well below its long-term average. For example, on November 17, 90-day WTI options closed at 23% implied volatility, well below their 31% average so far this decade (Figure 1). Are markets too complacent in the face of potential political disruption in Saudi Arabia and its neighboring countries.

Figure 1: Whistling Past the Graveyard or Rightfully Unconcerned?

Saudi Arabia Turbulence on the Horizon fig01

Several events have occurred since November 4 that should be of concern to the oil market:

Go to CMEGroup.com to read the full story

 

RJO Futures | 222 South Riverside Plaza, Suite 1200 | Chicago, Illinois 60606 | United States
800.441.1616 | 312.373.5478

This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.