$100 Oil? Some Investors Are Betting On It

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For months, analysts have been saying there's little chance of oil ever reaching $100 per barrel again.

But that outlook isn't shared by those investors who are making big bets on oil soaring once more, Bloomberg reported Friday.

Investors have been buying options deals that bet on the resource reaching prices of US$80 per barrel in 2018, US$100 in 2019 and US$110 in 2020, according to data obtained from the U.S. Depository Trust and Clearing Corp. and the New York Mercantile Exchange.

Because of today's low prices, they stand to make some serious money if oil reaches those levels.

oil derrick alberta

They're betting on the belief that low oil prices will lead to producers reduce new development so much that it will create a shortage of oil, Bloomberg said.

"Some hedge funds are betting that oil prices will need to rise sharply to bring demand down again," Bank of America Merrill Lynch head of commodities research Francisco Blanch told the agency.

"That’s why they are buying deep out-of-the-money call options."

oilsands
Heavy machinery operates at a Suncor Energy Inc. oil sands mining operation near Fort McMurray, Alberta, Canada, on Tuesday, Aug. 13, 2013. (Photo: Brent Lewin/Bloomberg via Getty Images)

These investors aren't the only ones making big bets on oil. Others have made bets it will reach as high as US$125 per barrel in December 2018, and US$150 in December 2020.

The hedge funds believed to be behind these bets have diversified portfolios, and they've likely bet on many different energy price scenarios. But they stand a chance of making lots of money on this oil-price bet, if it pans out.

And their hopes are not unfounded.

oil platform

The International Energy Agency (IEA) said last month that that a global supply glut could start to ease off as early as this year, CNBC reported.

That could push oil prices higher. And so could an expected drop in oil supply from non-OPEC producers, which is also projected to happen this year.

And they're not the only ones who think it's possible for oil to return to $100 per barrel. Last year, Gary Ross of consultancy PIRA Energy Group saidcrude could reach $100 per barrel again within five years, Bloomberg reported.

Ross had previously predicted a drop in oil prices that began in 2014.

oilsands
A Suncor Energy Inc. oil refinery and storage facility stands near Fort McMurray, Alberta, Canada, on Tuesday, Aug. 13, 2013. (Photo: Brent Lewin/Bloomberg via Getty Images)

But predictions of $100 per barrel fly in the face of analysts who see it as unlikely that they'll ever reach those heights again.

Daniel Yergin, a Pulitzer-winning author and vice-chair of research company IHS Inc., told the Associated Press that oil wouldn't reach $100 without "some big surprise or disruption."

And earlier this year, U.K. consultancy Cambridge Econometrics said oil prices could level out at anywhere between $83 and $87 per barrel between 2030 and 2050, if countries start approving lower-carbon policies.

In that context, investors betting on oil reaching $100 again are taking a big risk. But as is often said, high risk, high reward.

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