After dropping more than $2.00 in late Asian trading yesterday, crude prices rebounded to fresh 2009 highs. It was once again equities that propelled energy markets higher as investors chose to ignore a record drop in US housing prices, surging foreclosures and the now routine nuclear bomb explosion in N Korea. The only thing that can stop crude prices looks to be the commodity’s own self-fulfilling prophecy of higher prices resulting in yet another global economic slowdown. This phenomenon looks to be far off in the distance however, as traders now set their sights on the $70 mark (still less than half the heights from one year ago). The U.S. Dollar faired surprisingly well yesterday as traders are now focused on the growing crisis in the European banking system.
Yesterday’s decisive move higher after bouncing off lows more than 1 standard deviation to the downside may have removed the last of the doubters to this rally. Expect strong price action this morning in Asia, despite enormous inventory overhangs of both crude and products. Paper length appears to be in the driver’s seat and Singapore bunker fuel consumers may wish to hedge their upside against the inevitable push towards $400. Currently, traders can take advantage of the inflated put skew to help pay for a relatively better price ceiling than in recent months. For instance, the Sing FO 180cst 3Q09 $380 price ceiling (call) can be owned for zero cost by accepting a price floor (put) around the $340 level. Similarly, the 3Q09 $370/430 call spread can be owned for zero cost by selling the $325 put in the same tenor.
Singapore, 09:00
Tuesday, May 26, 2009
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