FT Alphaville » Oil facilities on fire

Via Reuters on Friday:

An oil facility at Zueitina, south of the Libyan rebel-held city of Benghazi, has been damaged and was on fire, Al Jazeera said, showing a video of black smoke rising from an oil plant.

Naturally, there’s nothing like images of oil facilities on fire to unnerve the commodity markets.

One of the reasons why oil — specifically WTI — has made a bit of an about turn on Friday.

Here’s the latest Brent-WTI spread:

And while we are on the subject of oil and the Middle East it’s worth popping up some chart porn from BNP Paribas’s rather excellent Friday wrap on what’s next for MENA countries.

Here’s some charts that specifically caught our eye.

First, per capita GDP — arguably the real source of real tension in the region:

Second, the potential financial liabilities at stake:

Third, who’s really benefiting from the higher oil prices:

… and last, the much debated youth unemployment demographic:

And for the options buffs out there, here’s how the added tensions have footprinted, in terms of skew, the market for oil-related calls — skew in this instance being the preference for protection versus a rise in oil prices:

And here’s some comment on that:

The implied volatility curve on WTI options that used to have a pronounced put-skew (Chart 2) has seen that skew flattened as volatility for out of the money calls was strongly bid higher. It is not just the skew that has changed, implying heightened risk aversion, the level of volatility has shifted higher making insurance against a price rise more expensive. So, for the oil market for now, when in doubt, buy. Therefore it is not surprising to witness open interest (Chart 3) on out of the money strikes for call options on NYMEX WTI rise in short-dated maturities.

All in all, the suggestion being: when in doubt, buy.

* username: rupertbu