Energy markets bounced back yesterday but reaffirmed $50 in WTI as a new level of resistance after that same price point failed to provide support during Monday's sharp retracement lower. Despite the rally, the broad contango structure remains in place across most markets. Expectations of further crude inventory builds to be announced tonight (following the pattern we've seen as of late) are mostly to blame for the resilience of the contango futures curve.
Not surprisingly, product margins on average were weaker on the rally, as we expected the lack of demand for most of these products to be a main catalyst in front-month market weakness. California Jetfuel differentials however held firm throughout the WTI rally and traders can expect to see follow-through to the upside in the Sing Jetkero contract today (barring a subsequent dump in WTI/Brent during early Asian hours. Implied volatility also increased for the second day yesterday, further highlighting questions as to whether Sing Jetkero has dropped back down into its most recent trading band.
Consumer hedgers looking to the second half of the year for protection can take a breather from the current volatility by locking in a wide collar. With the 2H09 Sing Jetkero Calendar Swap currently trading around $63, a price ceiling (call option) at $80 can be owned for zero premium by accepting a price floor (put option) at $52. This type of hedge typically will have much less mark-to-market volatility than simply buying swaps, in other words if the underlying continues to drop, margin calls should be comparatively less painful.
Singapore, 08:00
Tuesday, March 31, 2009
Subscribe to:
Posts (Atom)
Posts
