Energy markets stumbled again yesterday as doubts surfaced as to whether increased refinery runs will continue to draw down excess crude stocks. Valero’s McKee refinery may be taken offline imminently as opposed to later in the year; this puts downward pressure on WTI as this would be one less major refinery processing feedstock into gasoline ahead of the summer driving season. Despite the Valero rumors, crude stocks are expected to have experienced a slight draw last week on the back of relatively strong unleaded gas margins.
Implied volatility in Products weakened yesterday due to the lack of follow-through on the recent bullish momentum. In the NY market, Jet fuel prices pushed lower after replacement costs via the Gulf Coast weakened. On the back of a similarly weaker crude market, sentiment can be expected to be negative heading into Asian trading for Sing Jetkero. This leads to further opportunities to lock-in price caps for 2010 before a much-anticipated trend higher begins in the second half of 2009. With the Sing Jetkero Cal10 underlying swap currently trading around $71, an $80 price cap can be locked-in for zero cost by accepting a price floor of $65 in the same tenor. For consumer hedgers looking for a limited price floor, the Cal10 $50/60 put spread can be sold to partially offset the price of a $75 price cap. By selling this put spread, the hedger has limited downside risk (only $10) while maintaining unlimited upside price protection above $75. The short put spread strategy enables the hedger to own a Cal10 $75 price ceiling at a deep 35% discount.
Singapore, 09:00
Tuesday, March 10, 2009
Subscribe to:
Posts (Atom)
Posts
