Return to the $70 Pivot, Bunker Hedging Strategies

The $70 pivot in WTI crude proved too much of a magnet for the bears yesterday, as the October crude benchmark now stands firmly above $71. Dollar weakness on the back of encouraging European and Japanese economic data pushed equities and thus the asset class that we now know as crude oil higher. Nevertheless, the short-term focus remains on the US EIA data and whether or not the API’s shocking inventory draws will be matched.

The strong rally in Fuel Oil prices can be expected to continue for the foreseeable future as refinery run cuts and relatively strong bunker demand look to persist. By accepting a leveraged price floor in Singapore Fuel Oil 180cst at $380 (more than $50 below current levels), bunker consumers can gain a Zero Cost price ceiling at $450 (less than $20 above current levels) for the entirety of Q409. Similarly, by utilizing a limited price ceiling (protection from $450 to $500) consumers willing to accept the leveraged price floor at $380 can actually receive approximately $20/MT of premium reimbursements each month of Q409 so long as Sing FO 180cst settles above $380.

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