WTI crude oil experienced a slight drop yesterday, largely a result of continually weak global demand reflected unmistakably in further dire economic data. Consumer demand declines have resulted in seasonally lower refinery utilization numbers as many refiners have opted to close for maintenance, rather than produce products at a weak margin. This has not gone unnoticed as traders have bid up the front-month Rbob gasoline crack to almost $11 while seasonal heating oil demand has pushed the heat crack to above $18.00.
Meanwhile, near-month Brent continues to trade at a premium to WTI. Traders looking to take advantage of this typically short-term phenomenon can look to the options market for a risk-limited play. Based on Thursday’s underlying settlements, the April WTI $60 call can be purchased for a mere $0.10 by selling the same call in Brent. An even safer play would be to buy the April WTI $65/85 call spread for about $0.20 of premium by selling the same call spread in Brent. This trade involves Average Price Options, or “Asian-style”.
Singapore, 09:00
Thursday, January 29, 2009
Singapore JetKero Short Vol Strategy
A weak Dollar vs the Pound and Euro allowed crude markets to show strength in early NY trading before surprisingly bearish US inventory numbers pushed WTI lower. Gasoline stocks showed an equally surprising draw on the back of lower imports and increased refinery shut-ins. The front-month contango (March-April) increased as Opec production cuts appear to have placed a cushion under everything but front-month crude, which is currently at the mercy of weekly inventory numbers.
Implied volatility increased slightly yesterday across the energy complex. Yesterday’s Sing Fuel Oil 180 consumer hedge allowing for premium collection above $212.50 can be replicated in the Sing JetKero complex as well. Looking again at the Feb ’09 through Jan ’10 tenor, the trade pays out an average of $412,500 per 33,000 barrels of Sing JetKero (using a conversion of 6.6 barrels = 1mt) per month at or above the current calendar swap price of about $65. Below $65, the payout begins to decrease until it reaches zero at an average price of $51.25. Below this point, the trade incurs losses. To learn more about this hedge using Sing JetKero, contact us at the info below.
Singapore, 09:00
Implied volatility increased slightly yesterday across the energy complex. Yesterday’s Sing Fuel Oil 180 consumer hedge allowing for premium collection above $212.50 can be replicated in the Sing JetKero complex as well. Looking again at the Feb ’09 through Jan ’10 tenor, the trade pays out an average of $412,500 per 33,000 barrels of Sing JetKero (using a conversion of 6.6 barrels = 1mt) per month at or above the current calendar swap price of about $65. Below $65, the payout begins to decrease until it reaches zero at an average price of $51.25. Below this point, the trade incurs losses. To learn more about this hedge using Sing JetKero, contact us at the info below.
Singapore, 09:00
Subscribe to:
Posts (Atom)
Posts
