Sing Jetkero Consumer Strategy

Energy markets vacillated yesterday following the sharp pull-back from last week’s recent highs. Unfortunately, the commodity markets appear to be taking their lead from equity markets, which while also plumbing new depths on Monday, took a short breather yesterday. With so much volatility and uncertainty having been introduced to markets in the last seven months, traders are having difficulty focusing on any longer-term trends, instead trading more off of at-the-minute information. Particularly harmful to sentiment was news that the US, Europe and Japan have experienced a drop in oil demand of almost 10% in only the past 3 years.

Despite the lack of movement, refined products showed a slight increase in implied volatility yesterday. Using April Sing Jetkero as an example, most observers would expect yesterday’s lack of movement to result in relatively lower implied vols and thus cheaper option premiums. However, the recent break below $50 has introduced renewed uncertainty to the market. This along with the broader energy market questions of how much lower can it go and when will it bounce (and how hard) continue to inject fresh ambiguity to the market. Sing Jetkero consumers can protect their future fuel purchases against exactly this type of market sentiment using simple option strategies. For example, 250,000 barrels of Sing Jetkero can be locked-in at a max price of $65 per barrel for the next 12 months (April09-March10) by accepting a price floor of $51 in the same tenor. This with an underlying calendar swap price of just over $56. Moving the price cap higher will similarly result in a lower price floor (and lower margin requirement with less mark-to-market volatility).

Singapore, 09:00