Crude oil bounced off recent highs yesterday as the International Energy Agency attempted to allay supply disruption fears. The IEA announcement that strategic oil reserves could potentially be released upon disruption to oil and gas production as a result of Hurricane Gustav had a calming effect on the market. Meanwhile, prices remain +$115 as deep-water rigs continue evacuation procedures. Production is expected to be shut in for a minimum of 5 days.
With yesterday's drop-off in prices, consumer hedgers are seeing a short-term reprieve before the long weekend, with many unanswered questions regarding Hurricane Gustav. The Q4 $120/135 call spread strip can be purchased for Zero Cost by selling the $107 put in the same tenour. This trade allows the consumer hedger $15 of protection per month for Q4 with no premium at risk above $107.
Thursday, August 28, 2008
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