Crude oil prices pushed back above the $100 level yesterday amid mounting supply-side disruptions. Mend, the Nigerian militant group, has been launching fresh attacks almost daily on the country's production facilities. Currently, losses are estimated to be approaching 1m barrels per day as about 300,000 b/d were taken offline just this week. In the Gulf of Mexico, fallout from Hurricanes Gustav and Ike has yet to be quantified, however gasoline stocks now sit at 40 year lows. A full damage assessment of post-hurricane production capacity will take weeks, thus fostering further volatility in the crack markets, specifically gasoline and crude oil.
There still remains time for consumers to lock in crude prices at six-month lows. Using Asian options, the WTI Q4 $105/120 call spread strip can be owned for an average price of only about $3.70 per month. That's $3,700 of total risk per month with a maximum payout of $33,900 should oil prices rally back above $120. The trade can be made costless by selling the $95.50 put in the same tenor. In this case, the hedge would have a maximum payout of $45,000.
Singapore 15:30
Sunday, September 21, 2008
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