Added stimulus to the ailing Chinese economy provided the backdrop for a rise in commodity prices as crude oil once again bounced off the $50 level. Current demand destruction was highlighted by the US stock data showing large inventory increases for both crude oil and unleaded gasoline. These numbers emphasize the plight of Opec; the cartel has struggled to cut production at a rate which would reduce stocks in competition with plummeting demand. The group continues to tread one step behind the market, although recent gains in equities combined with the crude market falling almost $100 in 4 months appear to have placed a temporary floor under the oil price.
Yesterday's rally from $50 resulted in lower implied volatility and therefore cheaper option premiums. Consumer hedges have come into the spotlight again with traders looking at the WTI Asian-style Q109 $65/75 call spread strip, currently trading around $1.90 ($1,900 of total risk against $8,100 of profit potential per month). For the same risk exposure but with a larger band of upside protection, traders have also been quoting the WTI Asian-style Q109 $70/90 call spread strip, currently trading around $1.90 ($1,900 of total risk against $18,100 of profit potential per month).
Singapore, 06:30
Wednesday, November 26, 2008
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