(Bloomberg). Oil traders have been buying options contracts to pay out in case futures fall against an international benchmark. This is a sign that some think the Biden administration might intervene again to lower oil prices. 

Some traders have bet on the small chance that West Texas Intermediate’s discount to Brent surges past $10 a barrel next year. When severe pipeline restrictions entrapped barrels in Permian Basin, the nation’s largest oilfield, the spread was trading at $10 the last time it traded close to $10. On Tuesday, the spread traded at $3.60 per barrel.  

Oil market volatility has increased as the top oil consuming countries came together last month in an unusual move to reduce energy prices and release crude oil from their emergency reserves. The Biden Administration’s ongoing focus on lowering gasoline prices has now prompted some traders to purchase some contracts that could pay out just in case they takes further steps, such as limiting or pausing crude exports. 

Even if the spread between the benchmark contracts – a key indicator for pricing imports and exports – doesn’t widen all the way to $10, the options could still pay out marginally. Physical traders could lose millions of dollars if they are suddenly banned from exporting. 

Although they are not large in number, option trades have been consistently active over the last week. Last Tuesday saw the equivalent to 11.25 million barrels change hands. There have been 10.1million new positions opened. This is in anticipation of the Brent-West Texas Intermediate crude crude futures price rising past $10 a bar next year.  

Many traders think that an American export ban is unlikely. This makes trades similar to purchasing a lottery ticket. Exports being halted would cause more oil to be trapped in the United States and increase domestic price pressures. This is because local refiners cannot process light crudes produced in America efficiently. 

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