Evidence of Opec production cuts continues to mount with the Brent/Dubai EFS trading at parity. Typically, the lower quality, sour crude of the Dubai benchmark would trade at a discount to Brent or WTI. The narrowing of the spread is a strong indicator of follow-through on the part of regional producers. Meanwhile, geopolitical risks continue to increase as there appears no peaceful end in sight to the Israeli/Gaza conflict and the Russia/Ukraine spat has now spread into the EU, with Russia cutting back gas it claims Ukraine is siphoning off for itself.
Despite the current market uncertainties, implied volatility has dropped off markedly in WTI and Brent options. The cheaper premiums have encouraged hedgers to re-enter the market during the current period of flux. Producer hedgers have looked again to medium-term downside protection in the form of the WTI Cal09 $35/45 put spread strip, currently trading around $2,300 per 1000 barrels per month. This put spread strip can be made Costless by selling the $90 call in the same tenor. The Cal09 swap strip is currently trading around $58.50.
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Singapore, 09:00
Tuesday, January 6, 2009
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