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Oil has been locked in a tight range since early August as traders try to reconcile increased OPEC output with tightness in U.S. markets and a potential escalation of sanctions on Russia. (Lisa Leutner/Associated Press, file)

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A flurry of bets on Brent crude falling below $60 a barrel this year changed hands in recent days, a sign investors are hedging against the risk of another large production hike from OPEC and its allies.

Trading on Sept. 4 saw a spike in activity in December $55 and $60 puts, with the combined open interest in both options ballooning to the equivalent of 120 million barrels of crude. Trading volume for the $55 puts was the highest since early April, when OPEC shocked markets with a supply increase three times bigger than originally scheduled. Brent crude is currently trading near $65 a barrel.

The activity signals strengthening investor conviction that Brent will breach the key $60-a-barrel psychological level by the end of the year, when many analysts and traders expect a global glut of crude to form. Oil has been locked in a tight range since early August as traders try to reconcile increased OPEC output with tightness in U.S. markets and a potential escalation of sanctions on Russia.

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In recent days, signs have emerged that another major production increase may be in the offing. Bloomberg reported that OPEC+ leader Saudi Arabia wants the group to consider reviving more oil production ahead of schedule to help reclaim market share. Investors are now pricing in a 77% chance of OPEC+ deciding to revive more output ahead of its scheduled return, according to the CME FedWatch Tool.

December $60 puts now go for $1.35 each, compared to 59 cents just three days ago, highlighting the rush for protection ahead of the alliance’s scheduled videoconference Sept. 7. Broader oil options pricing had already taken a more pessimistic tilt as the summer driving season came to an end, with puts fetching the biggest premium over bullish calls since early August.

Oil sliding below $60 a barrel would be a major win for President Donald Trump, who has repeatedly tried to jawbone prices lower. His trade war has also weighed on prices by threatening to hurt energy consumption.

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