Energy markets pulled back yesterday following an almost uninterrupted run from $90 back up to $110. While trading based on fundamentals instead of panic has yet to return to any market, crude oil traders appear to be digesting the latest supply issues, such as Mend's "war on oil" in Nigeria, Saudi Arabia's actual trimming of production and a return to importer status for China, that is after a brief stint of exporting oil products following the Olympics. The full extend of damage done to Gulf of Mexico's production facilities has yet to be quantified, however it looks to be several months before the region will return to pre-hurricane levels.
The recent pullback provides consumer hedgers with a reprieve for locking in protection against higher prices for the remainder of 2008. Using Asian options, the WTI Q4 $115/130 call spread can be owned for an average price of only $2.30 per month. That's only $2,300 of total exposure per month with a maxium payout of $38,100. The call spread can be owned for Zero Cost by selling the $92 put in the same tenor. This would make the max payout on the call spread strip $45,000.
Singapore Fuel Oil hedgers looking to protect their upside can combine the above strategy with the purchase of 180 Fuel Oil Swaps in the WTI/Fuel Oil crack, currently trading around $18.00.
Singapore, 10:00
Tuesday, September 23, 2008
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