Many oil traders are positioning themselves to profit from a further fall in prices, taking large short-positions in U.S. crude contracts while going long in put options for oil at lower than current prices.
Oil prices dipped again in early Asian trading on Tuesday as traders expected lower refinery consumption after the U.S. summer, while Asia's weakening economies and high global production raised concerns about oversupply.
U.S. crude futures were trading at $41.84 per barrel at 0014 GMT, not far off more than six-year lows touched earlier this week, and almost a third below their last peak from May.
Trade data shows that speculators have taken huge bets on further falls. Open interest for short positions in WTI prices - which shows the number of deals betting on lower prices - has almost doubled since the beginning of August to nearly 247,000, even as prices have slumped almost 15 per cent.
"The amount of queries we've received recently about leveraging bets on further price falls has been astonishing," one broker said.
As well as betting on further outright falls in U.S. crude prices, traders have been aggressively taking up put options - an option to sell a contract once it has fallen to a certain level - at prices as low as $35 and even $30 per barrel.
As prices have fallen, the value of a put option for WTI at $35 per barrel has soared from just 17 cents at the beginning of July to over half a dollar this week, and the value of an option to sell at $30 per barrel has surged from a mere 7 cents in early July to 17 cents.
"If you've been shorting WTI while at the same time going long put options, you'll have made a lot of money in the last few weeks. Even if you close all the shorts now and sell your put options, you can go on holiday now," one trader said.
Technical market indicators point to further falls as well. Reuters technical analyst Wang Tao said that he expected U.S. crude oil futures to drop below current support levels at $41.54 per barrel and fall towards $40.68 a barrel in the short-term, based on a widely used Fibonacci projection analysis pattern.
"This is a typical continuation pattern, indicating a further downside towards $40.68," he said.