The $70 pivot in WTI crude proved too much of a magnet for the bears yesterday, as the October crude benchmark now stands firmly above $71. Dollar weakness on the back of encouraging European and Japanese economic data pushed equities and thus the asset class that we now know as crude oil higher. Nevertheless, the short-term focus remains on the US EIA data and whether or not the API’s shocking inventory draws will be matched.
The strong rally in Fuel Oil prices can be expected to continue for the foreseeable future as refinery run cuts and relatively strong bunker demand look to persist. By accepting a leveraged price floor in Singapore Fuel Oil 180cst at $380 (more than $50 below current levels), bunker consumers can gain a Zero Cost price ceiling at $450 (less than $20 above current levels) for the entirety of Q409. Similarly, by utilizing a limited price ceiling (protection from $450 to $500) consumers willing to accept the leveraged price floor at $380 can actually receive approximately $20/MT of premium reimbursements each month of Q409 so long as Sing FO 180cst settles above $380.
Singapore
Tuesday, August 18, 2009
Tuesday, August 11, 2009
Crude Markets Retrench; Singapore Fuel Oil 180cst Hedging
A stronger US Dollar finally brought the crude markets lower yesterday, pulling WTI crude below the psychological $70 support level and outside of its recent $70-72 trading range. Despite the wide gap between WTI and Brent (just under -$3.00), the spread between the two major benchmarks remained mostly unchanged during yesterday’s fall. For those watching the price of crude on a day to day basis, the US Dollar and equities (investor sentiment) remain the chief catalysts for moving the market.
Traders should remain wary of recently surfacing short-term bearish sentiment in crude markets (not only from investor sentiment but also as a result of the latest negative comments emanating from OPEC re oversupply of refined products and subsequent effects on feedstock demand). Plenty of time still remains in the Atlantic hurricane season and meteorologists are closely watching a storm cluster recently formed off the coast of West Africa. Given past encounters between oil producers/refiners and hurricanes in the Gulf of Mexico, ignoring the possibility of a price spike in the next few months can certainly prove costly.
Much to the chagrin of shipping companies around the world, bunker fuel prices remain firm despite recent weakness in major Western benchmarks. Therefore consumer hedging remains a major factor in controlling one’s fuel costs. Establishing a price ceiling in Q409 through 1H10 in Singapore Fuel Oil 180cst at $450 for Zero Cost is possible by accepting a leveraged price floor in the same tenor at around $380. Similarly, for those seeking a non-leveraged position, the $450/550 call spread in each of the 9 months beginning with Oct09 can be owned for Zero Cost by accepting a price floor around $390 in the same tenor. This hedge provides $100 of consumer protection per month in Q409 through 1H10 with no hedging losses at or above $390.
Singapore
Traders should remain wary of recently surfacing short-term bearish sentiment in crude markets (not only from investor sentiment but also as a result of the latest negative comments emanating from OPEC re oversupply of refined products and subsequent effects on feedstock demand). Plenty of time still remains in the Atlantic hurricane season and meteorologists are closely watching a storm cluster recently formed off the coast of West Africa. Given past encounters between oil producers/refiners and hurricanes in the Gulf of Mexico, ignoring the possibility of a price spike in the next few months can certainly prove costly.
Much to the chagrin of shipping companies around the world, bunker fuel prices remain firm despite recent weakness in major Western benchmarks. Therefore consumer hedging remains a major factor in controlling one’s fuel costs. Establishing a price ceiling in Q409 through 1H10 in Singapore Fuel Oil 180cst at $450 for Zero Cost is possible by accepting a leveraged price floor in the same tenor at around $380. Similarly, for those seeking a non-leveraged position, the $450/550 call spread in each of the 9 months beginning with Oct09 can be owned for Zero Cost by accepting a price floor around $390 in the same tenor. This hedge provides $100 of consumer protection per month in Q409 through 1H10 with no hedging losses at or above $390.
Singapore
Monday, August 10, 2009
Friday, August 7, 2009
Record levels of U.S. distillate fuel exports
The U.S. Energy Information Agency reports that monthly U.S. exports of distillate fuel are at record levels, driven partially by unusually high U.S. distillate fuel inventories.
Thursday, August 6, 2009
Tuesday, August 4, 2009
Oil Continues Higher, Singapore Fuel Oil 180cst Hedging
Energy markets took a breather yesterday during what appears to be a relentless march higher. Months, if not several quarters ahead of any significant return to demand, the current rally in the major crude benchmarks WTI and Brent has everything to do with a renewed demand for relatively riskier assets. This translates to day-to-day trading activity focusing almost exclusively on broader investment trends. The United States EIA inventory numbers due out tonight are expected to take a somewhat neutral tone, thus any surprise draws would give further impetus to the underlying rally, while builds may simply continue to be ignored.
Consumer hedgers (of any product) may wish to keep an eye on both WTI and Brent as the $75 level looks to be broken shortly. Twice we have bounced off this number in recent months as fears of the high price of crude derailing any nascent recovery begin to take hold.
Bunker prices continue to march higher on the back of increasing demand and refinery cuts, thus adding significant pain to shipping companies across the globe. Hedging strategies which utilize only swaps work best when a market simply moves in one direction. As the Western benchmarks approach $75 and another pull-back becomes possible, consumer hedgers can use options to take advantage of price swings lower while maintaining some measure of protection on the upside. The Singapore Fuel Oil 180cst Q409 $450/mt price ceiling (call option) can be owned for zero premium by accepting a price floor around $425. In order to reap the benefits of a possible (but not wholly likely) downward move in fuel prices in the final quarter of the year, hedgers can own the $450/500 call spread for zero premium by accepting a price floor at $375. This trade allows consumers to enjoy a healthy price drop of more than $60 before hedging losses begin while also providing $50 of protection per month above $450.
Singapore
Consumer hedgers (of any product) may wish to keep an eye on both WTI and Brent as the $75 level looks to be broken shortly. Twice we have bounced off this number in recent months as fears of the high price of crude derailing any nascent recovery begin to take hold.
Bunker prices continue to march higher on the back of increasing demand and refinery cuts, thus adding significant pain to shipping companies across the globe. Hedging strategies which utilize only swaps work best when a market simply moves in one direction. As the Western benchmarks approach $75 and another pull-back becomes possible, consumer hedgers can use options to take advantage of price swings lower while maintaining some measure of protection on the upside. The Singapore Fuel Oil 180cst Q409 $450/mt price ceiling (call option) can be owned for zero premium by accepting a price floor around $425. In order to reap the benefits of a possible (but not wholly likely) downward move in fuel prices in the final quarter of the year, hedgers can own the $450/500 call spread for zero premium by accepting a price floor at $375. This trade allows consumers to enjoy a healthy price drop of more than $60 before hedging losses begin while also providing $50 of protection per month above $450.
Singapore
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