In the oil options market, bets on higher prices are eclipsing bearish ones at a record pace, as traders brace for sanctions on Russian shipments.

For US crude futures, total call option open interest is 1.4 million contracts larger than puts -- the equivalent of 1.4 billion barrels. The gulf between the two recently grew to its widest since at least 1996, according to data compiled by Bloomberg. 

The surge underscores two major trends in the oil market in 2022. 

As the EU and US sanction Russian oil exports, traders have been bracing for a price spike. As a result, they have been buying big volumes of low-cost and relatively low-risk bets that prices will jump in the coming months. Over the next year open interest on West Texas Intermediate $120 calls is more than double any other strike.

The other is the lack of hedging by US producers, who have instead sought to gain exposure to the higher oil price environment with US crude averaging $97 a barrel so far this year. Producers generally buy put options to guarantee their revenues.

Of those US oil producers that have reported earnings this quarter, only 16% of crude production for 2023 has been hedged for far, Standard Chartered analysts including Emily Ashford and Paul Horsnell wrote in a report. It compares with 81% in 2017 in the same survey of active hedgers in the oil market.

“The US oil industry has become cautious in terms of drilling policy, but it has in our view become risk-loving in terms of the price risk it is prepared to carry,” they said.