Volatile trading in energies is expected to continue for the next 5-10 days as the market attempts to predict landfall for Hurricane Gustav in the Gulf of Mexico. Landfall is slated for Monday, leaving little prospect of follow-through on any movement for the remainder of this week- conflicting news and weather models will push and pull the market as fresh information is digested by traders. From the fundamentals side it looks as if the market is searching for that equilibrium level where demand growth is restrained but not destroyed.
Heading into this uncertain weekend with dark storm clouds on the horizon, there are yet many cheap short-term consumer hedge strategies available. The WTI $120/130 call spread can be purchased for Zero Cost in every month from October through December 2008, by selling the $104 put in the same tenour. If Hurricane Gustav disrupts supply this weekend, the hedge provides $10 per month of upside protection with no premium at risk above $104.
Tuesday, August 26, 2008
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