Opportunity for Consumer Hedgers

Focus yesterday in the energy markets turned once again to worries over demand destruction resulting from a continually faltering global economy. Past Opec production cuts partnered with a rumoured 1M barrel/day cut in March continue to be out-weighed by a lack of refinery action resulting in large feedstock builds in the United States. Over the past several months traders have watched as Fuel Oil cracks slowly strengthened. This is not to say that the FO price has remained bid, just that relative to a global benchmark such as WTI the price has experienced less sag, with March Singapore Fuel Oil 180 trading most recently between $250 – 270 before being offered late yesterday just below $250.

Yesterday’s price weakness has allowed consumer hedgers to enter into the market and secure short-term upside protection of the kind unavailable for the last several weeks using Zero-Cost Collars. The Q209 Sing Fuel Oil 180 $270 call can now be purchased for Zero-Cost by selling the $238 put in the same tenor. For those hedgers looking for less mark-to-market volatility (less painful margin calls), the Q209 $270/320 call spread can be purchased for Zero-Cost by selling the $205 put in the same tenor. Using a Q209 underlying reference price of approximately $249, this trade provides downside breathing room of approximately $44 in exchange for $50 of upside protection above $270.

Singapore, 09:00