Traders took their cue from Saudi Oil Minister Ali Naimi’s comments yesterday that the world economy is strong enough to endure $75-80 oil. The cartel’s de facto spokesperson provided fresh legs for what looks like the beginning stages of a push into the high $60’s for WTI and Brent. Look for resistance around $65.00 (mostly psychological), more specifically $64.85 and $65.20. Above these levels, look to scoop up some cheap puts around $67.12 as the market will encounter severe resistance at this point.
Energy markets may continue to ignore the enormous supply overhang in the short-term as inflationary pressures (manifest in rising long-term U.S. Treasury yields) have found a home in crude oil. Consumer hedgers and traders looking to be on-board for the next possible move higher can take advantage of the recently inflated put skew to finance the purchase of calls. For instance, the ICE Brent August09 $70 call can be owned for around $2.50/bbl or for zero premium by selling the $58 put in the same tenor. Similarly, the Brent December09 $70/85 call spread can be owned for zero cost by selling the $58.50 put.
Singapore
Thursday, May 28, 2009
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