Commodity and equity markets rallied yesterday on the back of a new stimulus announcement from China and fresh Obama infrastructure hopes in the U.S. Opec also ratcheted up the tough-talk with an announcement of a possible surprise cut in production of 2 million barrels at the cartel's upcoming meeting. Crude traders had called for a strong push lower to $40 in WTI and last week's move may have been it. With many analysts still looking for $30-35, the current level beckons consumer hedgers to lock in 4-year lows across the futures curve.
Using Asian-style options, the WTI 2Q09 $65/85 call spread strip is currently trading around $3,000 per 1000 barrels of exposure per month. With very limited risk, this consumer hedge has $51,000 of upside protection and can be combined with the sale of the $40 put in the same tenor to make the entire structure costless. With the 2Q09 swap currently trading around $52, the zero-cost strategy has about $12 of downside space.
Singapore, 08:00
Monday, December 8, 2008
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