It was no surprise to see crude prices rebound yesterday, following the pattern of the last few months of a tightening, range bound market. The major western crude benchmarks are increasingly squeezing the $70 price point while Singapore Fuel Oil prices ping back and forth between $410 and $450.
Most analysts point to the weak US Dollar which yesterday fell short of key resistance levels vs a basket of major currencies. We feel that so long as global economic data continues to trend positive, the Dollar will experience further selling pressure which will not necessarily impact crude prices to the same extend as we’ve seen since mid-March. Rather, the overwhelming excess supply (Saudi Arabia’s spare capacity, OPEC member and non-member flooding of the market) paired with weak global demand (excess refining capacity, weak industrial demand- China’s oil imports fell in August while diesel demand is dragging behind the country’s economic growth) will continue in the short-term to keep a lid on prices despite Dollar weakness.
Last week’s trade recommendation continues to work well- in effect if Oct09 and Nov09 Singapore FO 180cst settle below $450, the trader is rewarded with a free Dec09 $450 call. Given the market’s range bound trading as of late, this trade continues to be popular. It remains possible to put this trade on for Zero Premium (no premium at risk below $450 in Oct or Nov), but with October expiration fast approaching, the door for this trade is fast closing (which in this case implies its effectiveness and profitability is only increasing).
Singapore
Tuesday, September 22, 2009
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