A second day of consolidation around the $115 level served to decrease implied volatility in the energy markets yesterday. Competing forces continue to pull the market in two directions: crude and product inventories throughout the developed world remain dangerously low and a recent IEA report cited inventories in the second quarter of 2008 grew at their slowest rate in more than a quarter century. The report also found that while demand appears to be easing heading into 2009, there will be a "renewed tightening thereafter". The U.S. Gulf hurricane season remains on many trader's radar, as a newly formed tropical storm has yet to determine its path through the oil-rich locale.
Long-term upside hedges are consequently getting renewed attention as of late. The 1st Half of 2009 $125/140 call spread strip in WTI has been trading around $3.50. For total risk of only $3,500 per month, this trade enables the consumer hedger to enjoy $15 of protection from January through June of 2009 should the market rally back towards $140.
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Tuesday, August 12, 2008
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