Recessionary fears pushed crude oil below $70 in NY trading yesterday as market volatility again pushed to new heights. Energies rebounded in early Asian trading as consumer hedgers and investors looked to gain from the drop of more than 50% in crude prices since only mid-July. Not just commodities, but shipping costs as well have experienced large and rapid price falls, with the Baltic Dry Index trading at its lowest level since November 2002.
The early morning rally in crude prices has opened up fresh producer hedging opportunities. Using Average Price Options, the WTI December 2008 $55/70 put spread is currently trading at only about $4.50. That's $4,500 of total premium at risk with 43 days to profit from further downside moves in crude oil. The hedge can be owned for Zero Premium by selling the $82.50 call in December. This trade provides a full $15,000 of downside profit potential with zero premium at risk at or below the $82.50 level.
Singapore Fuel Oil hedgers looking to protect their downside can combine the above strategy with the sale of the 180 Fuel Oil Swaps in the WTI/Fuel Oil crack, currently trading around $19.50.
Singapore, 10:30
Thursday, October 16, 2008
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