Energy prices plummeted yesterday on the back of new data citing increasing damage done to the wallets of US consumers. Unfortunately, it has not been increasing supply, safe and plausable energy alternatives, or simply a more conservative demand climate that is pushing the crude price lower. What we're seeing now is possibly the beginnings of a macro-economic shock resulting from the recent high prices that is now pulling all commodities lower.
Too many potentially bullish factors remain in the mix to delay locking in these lower prices. Every $125 call from September through January in WTI Crude Oil can now be purchased for Zero Cost by selling the $119 put for the same months. This trade puts a ceiling of $125 on your hedging costs for the remainder of the 2008 calendar year while also placing a floor in the market at $119.
JK, HCE Asia (Singapore)
Monday, August 4, 2008
Commodities liquidation
New York, 17h00 Monday Aug 4.
Many commodities experienced a sell off today including energies. Energy equities also experienced a steep single day sell off, potentially foreshadowing weakening market confidence. Although ending the day $4 lower with range of $6.5 / bbl, this could be considered a normal day. The September crude straddle valued at $9 on Friday was fairly valued given these ranges. NG was off 7% with an rumor off a major fund liquidating. CL vols were a little bid and HO vols were a little weak.
An early rumor of a conciliatory letter expected from Iran Tues and hurricane Eduardo being a non event were reasons cited for the CL selloff. While real demand destruction is being witnessed in North America, we cannot yet confirm the post Olympics shift in demand from China and related markets. We are seeing lower demand from Chinese importers, which may reverse post Olympic restrictions on industrial manufacturing.
Many commodities experienced a sell off today including energies. Energy equities also experienced a steep single day sell off, potentially foreshadowing weakening market confidence. Although ending the day $4 lower with range of $6.5 / bbl, this could be considered a normal day. The September crude straddle valued at $9 on Friday was fairly valued given these ranges. NG was off 7% with an rumor off a major fund liquidating. CL vols were a little bid and HO vols were a little weak.
An early rumor of a conciliatory letter expected from Iran Tues and hurricane Eduardo being a non event were reasons cited for the CL selloff. While real demand destruction is being witnessed in North America, we cannot yet confirm the post Olympics shift in demand from China and related markets. We are seeing lower demand from Chinese importers, which may reverse post Olympic restrictions on industrial manufacturing.
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