Energy markets pushed higher yet again yesterday on the back of surprising inventory numbers out of the United States. The main market driver was the 3.3M barrel draw in gasoline supplies partnered with a less than anticipated build in WTI crude oil. The relatively lower gasoline prices have helped cushion what had been declining consumer demand while lower imports and seasonally weak refinery utilization have helped to tighten the contango curve and propel front-month WTI back above $42. It should be noted that the relatively lower refinery utilization numbers of late should be looked at in the context of the introduction of new refining facilities worldwide. With new capacity coming online as well as the continued drop in consumer demand relative to years past, it would not be surprising to see relatively lower refinery utilization data for the next several years.
With Fed Chairman Ben Bernanke recently stating the current recession could be over by the end of 2009 and Opec production cuts now clearly being reflected in market data, Fuel Oil consumers should look to the medium to long-term to lock-in price caps. Historically speaking, implied vols remain elevated, making Zero-Cost structures much more appealing than owning naked caps. The Sing FO 180 Cal10 Zero-Cost strategies would include owning the $310 call for free by selling the $285 put in the same tenor. This strategy can be paired with the purchase of the April09-Dec09 $280/350 call spread for zero cost by selling the $207 put. The above strategies provide excellent upside protection with zero premium at risk at or above the short put strikes.
Singapore, 09:00
Wednesday, February 25, 2009
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