Oil futures on NYMEX pulled back yet again yesterday as commodity markets continue to mimic those of equities. As traders wait for further proof of Opec cuts (and debate the likelihood of another cut before year-end), the lack of any positive news on the demand front as well as continued global economic turmoil continues to result in a dearth of bullish news.
Despite crude prices having dropped more than $90 in only 4 months, bearish producer strategies remain the focus for hedgers. Those who bought the WTI December 2008 $50 or $80 (even better) puts for next to nothing only a few short months ago have been rolling their profits and protection down to new and cheaper strikes. As highlighted yesterday, the Q109 $30 and $40 puts are trading at prices around only several hundred dollars to be short 1000 barrels from those strike levels.
Even more interesting, consumer hedgers are taking advantage of the prospect of a rebound in late 2009 by buying cheap upside protection in the form of calls and call spreads. The 2nd Half of 2009 $90 call strip has been trading around only $3.50, while the $90/110 call spread in the same tenor also has traded around only $1.50. That's $1,500 of total premium at risk per month to be long every $90/110 call spread in the second half of 2009. These values are reminiscent of the $50 and $80 puts only months ago when crude was trading around $100.
Singapore, 08:00
Wednesday, November 19, 2008
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