Consolidation entered back into energy markets last week as a surprisingly bullish US inventory report arrested the downward push in crude markets. With Cushing stocks nearing capacity, US imports are expected to decrease substantially and it is only a matter of time before refiners begin to draw-down the feedstock. Meanwhile, the short-term demand picture continues to look weak but is somewhat balanced by Opec supply cuts which currently adhere to approximately 70% of those previously announced.
With implied volatility remaining at elevated levels, safe and cheap consumer hedging strategies often involve either wide-strike costless collars or 3-ways. The recent contraction in the WTI contango market structure allows consumer hedgers to lock-in excellent near-term upside protection. Using Asian-style options, the WTI April ’09 through March ’10 $65 call strip can be owned for zero cost by selling the $38 put in the same tenor. The underlying calendar swap is currently trading just under $48, allowing for a buffer of almost $10 on the downside.
Singapore, 09:00
Sunday, February 22, 2009
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