By Georgina McCartney

HOUSTON (Reuters) – Investors ramped up oil futures and options trading in October to record levels in a bid to hedge growing uncertainty as war rages on in the Middle East and a bearish 2025 supply and demand outlook looms, triggering big swings in crude prices.

Hedging can help producers reduce risk and protect their production from sharp moves in the market by locking in a price for the oil. It can also give traders opportunities to profit in times of volatility. 

Some 68.44 million barrels of oil in futures and options were traded in October, according to data from the Intercontinental Exchange (NYSE:), surpassing the monthly record hit in March 2020 when Brent futures plummeted roughly $30 per barrel as the COVID-19 pandemic crushed global oil demand. 

CME Group (NASDAQ:), meanwhile, reported a single day volume record for weekly crude oil options on Oct. 18, with 58,132 contracts traded. 

Aegis Hedging, which has a client base with a production profile of about 25-30% of total U.S. barrels of oil equivalent, saw the highest number of trades in October in the company’s history, jumping by around 15% above the previous monthly record. 

“Bullish surprises like possible attacks on oil infrastructure are the sorts of events to spur activity among clients and cause jitters in the market,” said Jay Stevens, director of market analytics and fundamentals at Aegis Hedging.

Investors spent much of October waiting on Israel’s response to an Iranian missile attack on Oct. 1, concerned a retaliation could involve strikes on the country’s oil infrastructure. Israel’s strikes some weeks later bypassed Iranian oil facilities and did not disrupt energy supplies. 

This shrank oil’s geopolitical risk premium, analysts said, with futures tumbling by around $4 a barrel the following trading day.

Brent traded within a wide range in October, with lows and highs swinging between $70 and $81 per barrel. Last quarter, Brent crude futures slid 17%, while West Texas Intermediate crude futures fell by 16%, according to data from LSEG. 

“When you see futures prices get very volatile because of geopolitical and a range of other uncertainties, the market often looks to options as a way to manage risk in a more efficient way,” said Jeff Barbuto, global head of oil markets at ICE.

Investors traded more than 8.38 million barrels in Brent options in October on the ICE, surpassing the April 2024 record of 6.02 million barrels.

SLUGGISH DEMAND BALANCE

While geopolitical conflicts pose some upward price risk, traders are also facing a weak fundamentals outlook for 2025. 

West Texas Intermediate could average $65 a barrel next year, with a downside of under $50 a barrel if the Organization of the Petroleum Exporting Countries and allies (OPEC+) increase production next year, Tudor, Pickering, Holt & Co analyst Matt Portillo said in a note last month. 

“The market is addressing the supply and generally sluggish demand balance,” said Peter Keavey, global head of energy at CME Group. “(Investors are) really turning to the options markets to hedge,” he said, citing the sharp 38% year-on-year jump in average daily volumes of monthly options traded on the CME last month. 

U.S. shale producer Coterra Energy (NYSE:), which has not hedged a significant portion of its production through the end of this year and next, said it added new derivative contracts in October in its third quarter earnings report. 

The company added an additional 305,000 barrels of WTI oil hedges for the fourth quarter of 2024, on top of the 3.68 million barrels it already held. It added another 4.205 million barrels of WTI oil hedges for the remainder of 2025. 

Uncertainty around when OPEC+ would unwind its most recent layer of output curbs, a cut of 2.2 million bpd, further stoked producers’ concerns last month and helped buoy hedging activity. 

“The outlook has turned sourer for 2025, with projected oversupply,” Aegis’ Stevens said.

OPEC+ ultimately agreed to delay its planned December oil output increase by one month, the group said on Sunday, as weak demand notably from China and rising supply outside the group maintain downward pressure on the oil market.

By Nia Williams and David Ljunggren

(Reuters) -The Canadian government released draft regulations on Monday that would cap emissions of greenhouse gases from the oil and gas sector at 35% below 2019 levels by 2030, drawing condemnation from the industry that said it will force a production cut.

Oil and gas is Canada’s highest-polluting industry and its emissions continue to rise, undercutting progress in many other parts of the economy. Ottawa will likely fall short of its commitment to reduce emissions by 40-45% from 2005 levels by 2030 unless the oil and gas sector intensifies efforts to decarbonize.

Federal Environment Minister Steven Guilbeault said the sector’s profits hit C$66.6 billion ($47.95 billion) in 2022 and the government wants to motivate producers to invest those profits in decarbonization.

“This goes after pollution, not production,” Guilbeault told a news conference. “We’ve worked carefully to develop what is technically feasible for the sector, to keep industry accountable to their own promise to be carbon neutral by 2050.”

Canada is the world’s fourth-largest oil producer and sixth-largest producer.

Ottawa said oil and gas production is still expected to grow 16% from 2019 levels by 2030-2032 even with the emissions cap in place, and there would only be a 0.1% reduction in Canadian GDP as a result.

The regulations will create a cap-and-trade system designed to recognize better-performing companies and incentivize higher-polluting firms to make their production processes cleaner.

Producers will be required to start reporting their emissions from 2026, and the first three-year compliance period will run from 2030 to 2032. The government said it will develop penalties for producers that do not comply.

Most of the emissions reductions are expected to come from cutting methane pollution and a proposed oil sands carbon capture project, federal Natural Resources Minister Jonathan Wilkinson said.

Prime Minister Justin Trudeau’s Liberal government previously said it wanted the oil and gas industry to cut emissions by up to 38% from 2019 levels by 2030. Wilkinson said Ottawa settled on a 35% reduction after lengthy consultations to determine what was technically achievable for producers.

“If you start to go beyond what is achievable, you are moving this from an emissions cap to a production cap,” he told Reuters in an interview.

Canada faces a federal election within the next year, which polls suggest Trudeau’s Liberals will lose to the opposition Conservatives, led by Pierre Poilievre.

The Conservatives called the emissions cap an attack on the energy sector at a time of weak economic growth in Canada and said they would scrap the proposed policy if elected.

“Trudeau plans to crush the energy sector, putting hundreds of thousands of jobs at risk at the worst possible time,” the Conservatives said in a statement.

INDUSTRY OPPOSITION

Oil and gas industry associations also pushed back against the cap, arguing it will kill jobs and cut tax revenue.

The Canadian Association of Petroleum Producers said it would likely deter investment in Canadian oil and natural gas projects, while the government of Alberta, Canada’s main fossil fuel-producing province, said the cap would require a production cut of one million barrels per day by 2030.

“An emissions cap, which will act as a cap on domestic production of natural gas, will harm Canadian families and businesses by raising prices on energy,” Francois Poirier, CEO of pipeline company TC Energy (NYSE:), said in a statement.

Climate advocates welcomed the draft regulations, although some urged the government to close what they described as a loophole allowing producers to pay into a decarbonization program or buy greenhouse gas offset credits to cover up to 20% of their emissions.

“The rules must take effect sooner than the proposed 2030 timeline, and align with Canada’s climate goal of a 40-45% emissions reduction by 2030,” Environmental Defence said in a statement.

Formal consultations on the regulations will run from Nov. 9 until Jan. 8 of next year. The final version will be published in 2025.  

($1 = 1.3890 Canadian dollars)

LONDON (Reuters) -Oil prices traded in a narrow range on Tuesday ahead of what is expected to be an exceptionally close U.S. presidential election, after rising more than 2% in the previous session as OPEC+ delayed plans to hike production in December.

futures were up 45 cents, or 0.6%, to $75.53 a barrel by 1226 GMT, while U.S. West Texas Intermediate crude was at $71.94 a barrel, up 47 cents, or 0.7%.

“The fate of this election is important for the oil market, since a Donald Trump victory could have major consequences for international trade, geopolitical relations, U.S. energy policy and international climate policy,” analysts at France’s Engie Group said.

Oil prices had been supported by Sunday’s announcement from the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, to push back a production hike by a month from December as weak demand and rising non-OPEC supply depress markets.

Still, risk-taking remains limited with a busy week – including the U.S. election, the Federal Reserve’s policy meeting, and China’s National People’s Congress (NPC) meeting – keeping many traders on the sidelines, said Yeap Jun Rong, market strategist at IG.

For now, polls suggest the U.S. presidential race will be closely contested, and any delay in election results or even disputes could pose near-term risks for broader markets or drag on them for longer, added Yeap.

“Eyes are also on China’s NPC meeting for any clarity on fiscal stimulus to uplift the country’s demand outlook, but we are unlikely to see any strong commitment before the U.S. presidential results, and that will continue to keep oil prices in a near-term waiting game,” Yeap said.

Meanwhile, OPEC oil output rebounded in October as Libya resumed output, a Reuters survey found, although a further Iraqi effort to meet its cuts pledged to the wider OPEC+ alliance limited the gain.

Iran also plans to increase output by 250,000 barrels per day, the oil ministry’s news site said on Monday (NASDAQ:).

In the U.S., a storm predicted to intensify into a hurricane in the Gulf of Mexico this week could reduce oil production by about 4 million barrels, researchers said.

Ahead of U.S. weekly oil data on Wednesday, a preliminary Reuters poll showed on Monday that stockpiles likely rose last week, while distillate and gasoline inventories fell.