Sing JetKero

Energy markets continued their renewed push higher yesterday on the back of calls from Opec to increase compliance with already announced production cuts. WTI has now set a 3-month high in the push towards key resistance at the $50 level. Many traders have been caught off-guard with this post-Opec announcement rally and are looking for futures to turn within the week back towards $40. This prediction became all the more relevant yesterday as the API inventory numbers in the US came out overwhelmingly bearish.

Cracks showed considerable strength on top of the strong run-up in crude prices. California Jet Fuel differentials gained substantially, as did Nymex Heating Oil which is often used as a proxy by Airlines for hedging purposes. Singapore Jetkero and Distillate traders should be on the look-out for a near-term drive higher, while also guarding against the possibility that energy markets may turn and push lower. The Sing Jetkero 2Q09 $65 price cap (call strip) can now be owned for $1,500 per 1000bbls/month. Hedgers looking to offset half of the premium for this price cap while retaining some room for error on the downside can sell the $43.50 price floor (put strip) in the same tenor- resulting in a price cap premium of only $750. With the 2Q09 Calendar Swap currently trading around $55.00 this hedge results in breathing room of more than $11.50 on the downside, or more than six standard deviations.

Singapore, 09:00