Commodity sell-off bifurcates

We have witnessed a broad commodity sell-off over the last month, which has potentially hit a crossroad. US dollar strength has put pressure on gold and petroleum, and metals demand in is clearly weak in general due to industrial production. However, we see petroleum with substantial upside risk. News regarding the former Soviet states self-organizing to rally behind Georgia is one piece of bullish news that helped bring the market back to $115 from a low of $112.72 today. To protect upside risk, consider the September WTI Asian 120-130 call spread for $2.50 / bbl - a $10 wide payment with good leverage. To achieve a lower cost, the 130-140 call spread costs $1.25/bbl. In the event of a market surprise on the supply side, this would provide excellent protection. Also to note: back month crude volatility has been steeply discounted. Consumer hedgers looking for longer term protection have an improved cost profile.