WTI futures prices have been range bound in the past few weeks. Oil has slipped back to below $50 / barrel, and the options market confirms a 48% chance of remaining between $47 to $51 in the next twenty days. The largest Open Interest calls are the Dec 2016 $50, $55 and $60 strikes. On the downside, the largest Open Interest strikes are the Dec 2016 $45, $40 and $30 puts. The Open Interest volumes on those strikes are relatively balanced, with a slight downward bias in the recent buying of the $45 puts.
A large positive put skew remains in the market. Heavy buying of the 10 delta calls in Dec 2016, which equates to the $55 dollar strike, coincided with the move above $50 in the beginning of October. However, the market has since slipped back to sub-50 and it seems to want to drift in the downward direction.
The options market is clearly not anticipating any surprises as indicated by the At-The-Money implied volatility. It has dropped drastically in the past 30 days from ~44% to ~34%. The late September meeting of OPEC members and Russia did not lead to an output cut. Nor has there been any other major news to impact the options market. Under these low volatility, sparse news conditions, the market will be very reactive to inventory numbers, which have been bullish lately. By contrast, the fall of refinery utilization to 85.60% indicates that demand for refined products is not strong and therefore less crude is needed.
Expect volatility to rise as futures continue to drop. Going long Dec 2016 put spreads and put ratios are suggested strategies in the short term.