Questions Remain as Ike makes Landfall

Energy markets traded tentatively on Friday as Hurricane Ike's ultimate landing point this weekend in Texas remained largely in question. On Friday, traders considered that up to 20% of US refining capacity may be in danger as well as access to the Houston shipping channel. Preliminary reports surfaced late in the weekend suggesting the storm may not have wreaked quite the havoc many analysts were predicting, however, final analysis of damage done to refining infrastructure and Houston's vital transport network will take at least a week.

Producers worried about support being removed from the market and looking to quickly lock in crude prices above the $100 level can take advantage of cheap option strategies using Average Price Options (Asian options). A producer price floor of $100 can be owned in the 4th Quarter of 2008 (Q408) for only $5.90 per month. This strategy can be made costless by selling the $103 call and locks in the hedger's crude oil price between $100 and $103.