Expect further downward pressure across the energy complex as today’s EIA report should further highlight historically elevated inventories against enduring demand weakness. Equity sentiment continues to soften due to further capital raising issues at Citi, not to mention the hit investor confidence is taking from the yet-to-be-contained swine flu. Whether the tie that has bound crude markets to equities continues to deteriorate or not, the supply & demand fundamentals of the oil and products market have become too apparent to be ignored. Thus, expect light-sweet crude to push lower to the $45 mark while Singapore Fuel Oil 180cst should also test recent lows. Both markets have failed recently to push convincingly above resistance levels ($52 for WTI and $300 for Sing FO) and the Fuel Oil market in particular looks to be sitting right on key (and weak) support levels.
Physical traders long Singapore Fuel Oil and looking to protect against a short-term downward move should look to own a price floor (put) in June09 Sing FO 180 at the $270 level for $19,000/1000MT. This put floor can be made cheaper by instead buying the June09 $230/270 put spread for only $14,000/1000MT. Lastly, the June09 $270 price floor can be owned for zero cost (with unlimited downside protection) by accepting a price ceiling (short call) at the $295 level.
Singapore, 09:00
Tuesday, April 28, 2009
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