Energy prices softened on Friday as profit-takers took the hint from bearish European economic data as well as recent Opec statements. The producer’s cartel recently warned of the excessive supply overhang in relation to consistently weak demand. While Open would certainly enjoy higher crude prices, the group is wary of the volatility high prices would engender at this stage of the global economic meltdown/bottom. Speculative money continues to prop up prices and support in WTI at $56 remains intact despite Friday’s market weakness.
Distillate cracks continue to look weak, especially in relation to the gasoline margin which settled above support at $14. Speculative inflows should help to push the gas crack towards $20 as we approach summer driving season in many large consumer countries.
Consumer hedgers looking to take advantage of Friday’s drop in underlying prices also have a softening of implied volatility working in their favor. Currently, the WTI Aug09 $60/70 call spread can be owned for only about $2.70/bbl or for zero cost by selling the $53.50 put in the same month. Similarly, the $60/70 call spread can be owned for only $1.00/bbl by selling the $50/55 put spread. Max loss on this trade is confined to the width of the put spread ($5) plus the $1 premium paid for the call spread.
Singapore, 09:00
Monday, May 18, 2009
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