Tuesday’s largely ignored API build in WTI proved to be spot on as the Department of Energy released similar data yesterday. The 7.2M barrel build at Cushing Oklahoma served to increase the contango yet again. Refined products saw relatively bullish data resulting in an increase in cracks. Despite the large feedstock build, the western benchmarks of WTI and Brent showed modest gains as the market remains focused on Opec’s continued supply cuts.
Sing Jetkero swaps followed WTI’s lead with a lack of any sharp movement yesterday. The consolidation we’ve seen over the last few weeks has brought a weakening of implied volatility, yet option premiums remain elevated if examined in a historical context. Distillate consumers looking to hedge their upside risk while collecting premiums can take advantage of a trade that pays cash while the market consolidates, drifts somewhat lower, or rallies. Using Sing Jetkero Average Price Options, the hedge pays out an average of $300,000 per 30,000 barrels of Sing Jetkero per month at or above the current calendar swap price of about $65. Below $65, the payout begins to decrease until it reaches zero at an average price of $55. Below this point, the trade incurs losses. To learn more about this hedge using Sing Jetkero or Sing Fuel Oil 180, contact us at the info below.
Singapore, 09:00
Wednesday, February 4, 2009
Tuesday, February 3, 2009
Competing Pressures on Energy Markets
Energy markets continued to consolidate yesterday with both WTI and Brent settling slightly higher. The sharp contango we’ve been writing about lately in WTI decreased to some extent as continued pressure from Opec appears to be showing results in the western benchmarks. The front month March WTI vs December ’09 calendar spread narrowed by $0.74. Product cracks weakened over the last few days after a sharp run-up last week, this as a result of Shell agreeing to sign a tentative agreement averting a US oil worker strike. While the pressure from producing nations continues to be matched by weak economic data, all eyes are on the stimulus packages and how they will affect demand in the coming months.
Fuel Oil consumers taking a medium-term view can look to a costless collar structure in Q309. The Sing FO 180 Q309 $290 call can be purchased for zero premium by selling the $248 put in the same tenor. With the underlying swap currently trading around $262.00, downside risk is about $14 lower, allowing for some market movement without losses immediately accumulating on a downward push, as would be the case with simply buying a Q309 swap. Also, the costless collar typically requires less margin than a swap.
Singapore, 09:00
Fuel Oil consumers taking a medium-term view can look to a costless collar structure in Q309. The Sing FO 180 Q309 $290 call can be purchased for zero premium by selling the $248 put in the same tenor. With the underlying swap currently trading around $262.00, downside risk is about $14 lower, allowing for some market movement without losses immediately accumulating on a downward push, as would be the case with simply buying a Q309 swap. Also, the costless collar typically requires less margin than a swap.
Singapore, 09:00
Sunday, February 1, 2009
Refinery Margins Widen
Crude markets ended last week little changed from Thursday’s settlements, while gasoline and heating oil markets pushed higher. In the US, the United Steelworkers union rejected a further proposal from Shell, thus allowing the oil workers’ contract to expire over the weekend. Apparently this effects about 30,000 refinery workers potentially affecting 50% of product production in US energy companies. Valero, Exxon and Shell have all stated that they will try to continue operations in lieu of idling. Similarly, walkouts in Britain continue to affect ConocoPhillips’ UK refineries. The current abnormally low refinery utilization data, increasing refinery shutdowns due to maintenance and unseasonably cold weather in the US Northeast have created strong momentum for product prices vs crude feedstock.
Opec continues to appear disappointed at the lack of bounce in energy prices. While at Davos, Abdalla El-Badri, Opec’s Secretary General, was quick to point out that the organization would announce further cuts in March if not satisfied with market prices. The consolidation we’ve seen across much of the energy sector in the last few weeks is a result of Opec’s follow-through on announced cuts. Further cuts, despite continued economic turmoil and weak demand may push prices further back along the futures curve significantly higher. Consumer hedgers looking to protect their upside can purchase the WTI Q409 $70/90 call spread strip for an average price of about $3,000 per 1000 barrels, or for zero premium by selling the $41 put in the same tenor.
Singapore 09:00
Opec continues to appear disappointed at the lack of bounce in energy prices. While at Davos, Abdalla El-Badri, Opec’s Secretary General, was quick to point out that the organization would announce further cuts in March if not satisfied with market prices. The consolidation we’ve seen across much of the energy sector in the last few weeks is a result of Opec’s follow-through on announced cuts. Further cuts, despite continued economic turmoil and weak demand may push prices further back along the futures curve significantly higher. Consumer hedgers looking to protect their upside can purchase the WTI Q409 $70/90 call spread strip for an average price of about $3,000 per 1000 barrels, or for zero premium by selling the $41 put in the same tenor.
Singapore 09:00
Thursday, January 29, 2009
WTI vs Brent
WTI crude oil experienced a slight drop yesterday, largely a result of continually weak global demand reflected unmistakably in further dire economic data. Consumer demand declines have resulted in seasonally lower refinery utilization numbers as many refiners have opted to close for maintenance, rather than produce products at a weak margin. This has not gone unnoticed as traders have bid up the front-month Rbob gasoline crack to almost $11 while seasonal heating oil demand has pushed the heat crack to above $18.00.
Meanwhile, near-month Brent continues to trade at a premium to WTI. Traders looking to take advantage of this typically short-term phenomenon can look to the options market for a risk-limited play. Based on Thursday’s underlying settlements, the April WTI $60 call can be purchased for a mere $0.10 by selling the same call in Brent. An even safer play would be to buy the April WTI $65/85 call spread for about $0.20 of premium by selling the same call spread in Brent. This trade involves Average Price Options, or “Asian-style”.
Singapore, 09:00
Meanwhile, near-month Brent continues to trade at a premium to WTI. Traders looking to take advantage of this typically short-term phenomenon can look to the options market for a risk-limited play. Based on Thursday’s underlying settlements, the April WTI $60 call can be purchased for a mere $0.10 by selling the same call in Brent. An even safer play would be to buy the April WTI $65/85 call spread for about $0.20 of premium by selling the same call spread in Brent. This trade involves Average Price Options, or “Asian-style”.
Singapore, 09:00
Singapore JetKero Short Vol Strategy
A weak Dollar vs the Pound and Euro allowed crude markets to show strength in early NY trading before surprisingly bearish US inventory numbers pushed WTI lower. Gasoline stocks showed an equally surprising draw on the back of lower imports and increased refinery shut-ins. The front-month contango (March-April) increased as Opec production cuts appear to have placed a cushion under everything but front-month crude, which is currently at the mercy of weekly inventory numbers.
Implied volatility increased slightly yesterday across the energy complex. Yesterday’s Sing Fuel Oil 180 consumer hedge allowing for premium collection above $212.50 can be replicated in the Sing JetKero complex as well. Looking again at the Feb ’09 through Jan ’10 tenor, the trade pays out an average of $412,500 per 33,000 barrels of Sing JetKero (using a conversion of 6.6 barrels = 1mt) per month at or above the current calendar swap price of about $65. Below $65, the payout begins to decrease until it reaches zero at an average price of $51.25. Below this point, the trade incurs losses. To learn more about this hedge using Sing JetKero, contact us at the info below.
Singapore, 09:00
Implied volatility increased slightly yesterday across the energy complex. Yesterday’s Sing Fuel Oil 180 consumer hedge allowing for premium collection above $212.50 can be replicated in the Sing JetKero complex as well. Looking again at the Feb ’09 through Jan ’10 tenor, the trade pays out an average of $412,500 per 33,000 barrels of Sing JetKero (using a conversion of 6.6 barrels = 1mt) per month at or above the current calendar swap price of about $65. Below $65, the payout begins to decrease until it reaches zero at an average price of $51.25. Below this point, the trade incurs losses. To learn more about this hedge using Sing JetKero, contact us at the info below.
Singapore, 09:00
Tuesday, January 27, 2009
Volatility Hedging Strategies for Sing FO 180
Despite a run-up in equities, energy markets tumbled from recent highs yesterday. API stock figures came out with builds lower than those predicted for WTI and Gasoline, while the protracted and bitter winter in the US Northeast continues to be a lone source of refined products demand, resulting in a draw of 350,000 barrels. Support for WTI is once again around the $40 level- more than $2.00 below the current trading price- reinforcing the strategy of buying puts to protect long swap hedges in the currently volatile markets.
With the Sing Fuel Oil 180 2009 calendar swap now trading well over $260, an example of cheap downside protection against long swap positions can be found in hedges such as the Feb-Aug ’09 $230 put strip, currently offered around $26. The option does not need to be held until expiration to show a profit, a sharp move lower may show profits which can then be unwound against losses in a long swap position.
Similarly, Sing Fuel Oil 180 consumers can find upside protection in a hedge that pays cash as a result of a lack of downward movement with unlimited upside. The trade currently being quoted is a 12 month calendar strip from Feb ’09 through Jan ’10 (it can be adjusted to contain any calendar tenor required). For every 5,000MT, the trade pays out an average of $400,000 per month at or above the current calendar swap price of about $270. Below $270, the payout begins to decrease until it reaches Zero at $212.50. Below this point, the trade incurs losses. Given the current relatively high level of volatility, this hedge allows the consumer to collect large amounts of premium while taking advantage of the relatively low calendar swap price (losses not incurred until below an average calendar swap price of $212.50). With implied volatility in Calendar 2009 approximately around 73%, the lower level price barrier of $212.50 represents a 4.5 standard deviation move.
Singapore, 09:00
With the Sing Fuel Oil 180 2009 calendar swap now trading well over $260, an example of cheap downside protection against long swap positions can be found in hedges such as the Feb-Aug ’09 $230 put strip, currently offered around $26. The option does not need to be held until expiration to show a profit, a sharp move lower may show profits which can then be unwound against losses in a long swap position.
Similarly, Sing Fuel Oil 180 consumers can find upside protection in a hedge that pays cash as a result of a lack of downward movement with unlimited upside. The trade currently being quoted is a 12 month calendar strip from Feb ’09 through Jan ’10 (it can be adjusted to contain any calendar tenor required). For every 5,000MT, the trade pays out an average of $400,000 per month at or above the current calendar swap price of about $270. Below $270, the payout begins to decrease until it reaches Zero at $212.50. Below this point, the trade incurs losses. Given the current relatively high level of volatility, this hedge allows the consumer to collect large amounts of premium while taking advantage of the relatively low calendar swap price (losses not incurred until below an average calendar swap price of $212.50). With implied volatility in Calendar 2009 approximately around 73%, the lower level price barrier of $212.50 represents a 4.5 standard deviation move.
Singapore, 09:00
Thursday, January 22, 2009
US Inventories Surprise Traders
Wednesday’s bullish momentum in the energy complex was dealt a short-term blow yesterday by surprisingly large US inventory builds in both crude and products. WTI March/April contango pushed back out towards -$3.00 but has recovered in early Asian trading to around -$2.40. The near-term contango futures curve remains completely beholden to the excess inventory levels in Cushing, Oklahoma. Until demand can consume this surplus, any recovery in the contango structure will be short-lived.
After two major spikes higher in January, Sing JetKero looks to be testing support on the downside. The March ’09 contract can possibly form a double-bottom if support remains strong around the current $55.50 level. If so, look for a quick recovery across the Cal09 swap, making now an excellent time for consumers to use 3-way option structures to maintain unlimited upside protection with limited downside risk. Indications: The Sing JetKero March-December09 $80 call strip can be purchased for Zero Cost by selling the $42/57 put spread strip in the same tenor. This hedge allows for unlimited upside protection above $80 in every month from March through December in 2009. On the downside, risk is limited to only $15 through the use of a put spread strip (instead of the traditional costless collar structure where a naked put strip is sold to finance the call purchase).
Singapore, 09:00
After two major spikes higher in January, Sing JetKero looks to be testing support on the downside. The March ’09 contract can possibly form a double-bottom if support remains strong around the current $55.50 level. If so, look for a quick recovery across the Cal09 swap, making now an excellent time for consumers to use 3-way option structures to maintain unlimited upside protection with limited downside risk. Indications: The Sing JetKero March-December09 $80 call strip can be purchased for Zero Cost by selling the $42/57 put spread strip in the same tenor. This hedge allows for unlimited upside protection above $80 in every month from March through December in 2009. On the downside, risk is limited to only $15 through the use of a put spread strip (instead of the traditional costless collar structure where a naked put strip is sold to finance the call purchase).
Singapore, 09:00
Subscribe to:
Posts (Atom)
Posts
