Energy markets surged yet again yesterday, moving higher on the back of further optimism for US equities (GS, MS and JPM all applied to refund a total of about $45B in TARP funds), a weakening Dollar and several fires at large US refineries. The unexpected refinery problem caused a surge in the gas crack, pushing the July refinery margin well over $15 and closer to the $20 predicted by this column last week. Look for resistance in crude around $60.50, while a surprise build in US inventory numbers (analysts are predicting a draw at this point) could cause a return of profit-taking resulting in a re-testing of the $58.85 level. Although at these levels, a continued push higher is vastly more likely.
Product implied volatility remained mostly unchanged through yesterday’s rallies. California Jet Fuel prices looked strong and thus similar price action can be expected in the Singapore Distillates once crude begins its usual late-Asian trading day rally (currently the markets are unchanged to slightly lower due to retracement on the back of recent rallying and low liquidity, but expect strength later in the day).
While implied vols remained largely untouched yesterday, the put skew which first appeared several weeks ago was further strengthened. As the market pushed relentlessly higher shrewd traders have scooped up puts for the inevitable retracement lower, thus bidding up the right to short the market. Consumer hedgers of Singapore Jetkero can take advantage of the inflated put values by selling them to finance price caps for the remainder of the year. For instance, Sing Jetkero prices can be capped at $75 to as high as $100 for the second half of 2009 for about $3.00/bbl while unlimited protection can be bought at $80 for the same tenor by accepting a price floor at $60.
Singapore, 09:00
Tuesday, May 19, 2009
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