Implied Vols Retreat

With just a few days until expiration, February ’09 WTI pushed back up towards $40 as political pressure has increased for a larger US government stimulus package and direct capital injections. Despite trading below $40, the possible effect of any stimulus package is evident in the contango futures curve, with the entire WTI curve beyond April ‘09 trading above $50. The Brent curve trades above $50 after March ’09. Floating storage to be released upon the market throughout 2009 will continue to have a price dampening effect, while geopolitical issues such as the as yet unresolved Russia/Ukraine gas spat and the tinderbox-like war between Israel and Hamas in Gaza persist in requiring a premium of the energy markets.

The lack of sharp movement in the last few trading days has resulted in a drop in implied volatility. Consumer hedgers searching for bargains can look to the WTI Feb09-June09 $60/75 call spread strip, currently trading around an average price of $2,600 per 1000 barrels per month. The hedge can be made costless by selling the $43 put in the same tenor.

Singapore, 09:00