Energy markets pushed higher last week after strong signs emerged that gasoline demand in the US has stabilized and even increased. WTI ended Friday trading in NY just below the one-month highs set on Thursday. Gasoline futures weakened on Friday after a strong week of gains with similar price action seen in Singapore refined products, such as the Sing Fuel Oil 180 and Sing Jetkero swaps, all posting gains on the week after bouncing off support levels less than 10 days previously. Continually weak forecasts for oil demand due to poor global economic growth will persist in weighing heavily on energy markets, preventing any near-term sustained move higher. Instead, traders are betting on Opec’s high level of compliance with previously announced production cuts on top of an expected announcement of a further decrease of +1M barrels/day in March to push crude and refined prices higher in the second half of 2009.
Hedgers looking to protect against depleted inventories jolting crude markets higher in 2H09 can lock in a price ceiling and floor with very limited mark-to-market volatility vs the standard long-swap hedge. The WTI 2H09 $60/80 call spread strip can be owned for zero premium by selling the $42 put in the same tenor. This hedge provides $20 of upside protection per month above $60 with zero premium at risk at or above $42. With the 2H09 calendar swap currently trading around $52, the hedge provides for almost $10 of breathing room on the downside. It should also be noted that the margin requirement on this trade may be significantly less than that required for a typical long swap.
Singapore, 09:00
Sunday, March 1, 2009
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