Crude oil prices backed off recent highs after the US Senate caught many traders off-guard by rejecting the proposed $14 billion bail-out plan. Opec's upcoming meeting as well as the expected production cuts of approximately 2-2.5M had been priced into the market when news of the auto bail-out failure broke. With global oil demand expected to continue falling through much of 2009, the pressure is on the cartel as well as non-Opec producers such as Russia to remove excess production from the market. Producer nations are facing the continuing pressure of a double revenue hit, from both falling demand and plummeting prices.
Short and medium-term vertical put spreads using WTI options allow for easy entry and exit (deep liquidity) as well as no counterparty risk (NYMEX clearing). The 1H09 $20/30 put spread is trading at only $700 per 1000 barrels per month. This producer hedge allows for total protection of $9,300 per month with only $700 at risk.
Singapore, 21:00
Sunday, December 14, 2008
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