January 7, 2007 (LPAC)-- The fastest-growing bet in the oil market these days is that the price of crude will double to $200 a barrel by the end of the year. Options to buy oil for $200 on the New York Mercantile Exchange have risen 10-fold in the past two months to 5,533 contracts, a record increase for any similar period, according to Bloomberg News. The contracts purchased in early December have appreciated 36% since then, as futures contracts for crude oil reached a record $100.09 per barrel on Jan. 3.

This is obviously pure speculation, but it is indicative of the mania dominating the markets. Options, which give speculators the right to buy 1,000 barrels of oil in December, are becoming a favorite for traders even if they don't expect crude to reach $200, simply because it is a cheaper way to speculate. The Nymex options, expire worthless if crude fails to reach the "strike" price, but can increase in value if the price of oil goes up. According to one analyst, these figures indicate that investors believe the likelihood of crude reaching $125 a barrel in December has almost doubled since Dec. 25, to 18%. There were 500 of the options on Nov. 7.

At work in the background are two opposing views, both based on the "law" of supply and demand. The first says supplies are limited and price will stay high, the other, sees demand slipping as the US goes into a depression. One of the most insane corollaries of this theory, is that, in the words of one trader, "we can't be in a recession, look at the price of oil!"