Energy markets continued to consolidate yesterday with both WTI and Brent settling slightly higher. The sharp contango we’ve been writing about lately in WTI decreased to some extent as continued pressure from Opec appears to be showing results in the western benchmarks. The front month March WTI vs December ’09 calendar spread narrowed by $0.74. Product cracks weakened over the last few days after a sharp run-up last week, this as a result of Shell agreeing to sign a tentative agreement averting a US oil worker strike. While the pressure from producing nations continues to be matched by weak economic data, all eyes are on the stimulus packages and how they will affect demand in the coming months.
Fuel Oil consumers taking a medium-term view can look to a costless collar structure in Q309. The Sing FO 180 Q309 $290 call can be purchased for zero premium by selling the $248 put in the same tenor. With the underlying swap currently trading around $262.00, downside risk is about $14 lower, allowing for some market movement without losses immediately accumulating on a downward push, as would be the case with simply buying a Q309 swap. Also, the costless collar typically requires less margin than a swap.
Singapore, 09:00
Tuesday, February 3, 2009
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