Crude oil prices bounced off recent lows yesterday but remained range-bound as the U.S. approaches the long Labor Day holiday weekend. Bearish supply news has been paramount as of late, with Opec apparently pumping between 0.5m and 1m barrels per day above it's original August target. This has led to speculation of a production cut at the cartel's upcoming September 9th meeting, however de facto leader Saudi Arabia has yet to voice concerns over current market prices. Traders are watching whether the market can break below the current support level of $110-112, a level which has held under several bearish pushes lower over the past several weeks.
As the market is currently sitting in the middle of the $110-120 range, consumer hedgers should look to lock in protection ahead of the long holiday weekend in the U.S. With a potential hurricane on the horizon, short-term upside protection can be found in the Q4 Zero Cost $115/125 call spread. This spread provides $10 of immediate upside protection by selling the $107 put in the same tenour and there is no premium at risk in this trade above that level.
Monday, August 25, 2008
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