Hudson Capital Energy is now making markets in Nymex cleared Sing JetKero Asian-style options. The ability to create and price structures such as Costless Collars in just seconds during Asian trading hours will help us provide Airlines and interested hedgers with enormous liquidity in this once opaque OTC-only market. This note is part of a Singapore Products Report our group will be distributing twice per week to possible counterparties who may be interested in trading Sing JetKero options.
Singapore JetKero swaps rebounded in late December after falling from highs of greater than $180 per barrel during the summer. The February contract bounced off the $55 level and later built support at $60, after hitting this level twice (the second week of December and again late last week). Looking further back along the contango futures curve, August09 bottomed out just below $65 and looks to be building support around the $70 level. It is this consolidation (not only in JetKero, but also in similar regional products markets) that has resulted in a decrease in implied volatilities, thus making option structures more attractive.
Fiscal stimulus in China will eventually impact consumer demand, increasing travel and therefore JetKero demand. The same is true in both the United States and Europe. Airlines looking to protect their fuel requirements for the remainder of 2009 can look to the Sing JetKero Feb09-Dec09 $57/90 Costless Collar. With the calendar swap trading above $69.00, this hedge provides a downside average buffer of approximately $12.00 with unlimited upside protection above $90.
Singapore, 10:00
Tuesday, January 13, 2009
Implied Vols Retreat
With just a few days until expiration, February ’09 WTI pushed back up towards $40 as political pressure has increased for a larger US government stimulus package and direct capital injections. Despite trading below $40, the possible effect of any stimulus package is evident in the contango futures curve, with the entire WTI curve beyond April ‘09 trading above $50. The Brent curve trades above $50 after March ’09. Floating storage to be released upon the market throughout 2009 will continue to have a price dampening effect, while geopolitical issues such as the as yet unresolved Russia/Ukraine gas spat and the tinderbox-like war between Israel and Hamas in Gaza persist in requiring a premium of the energy markets.
The lack of sharp movement in the last few trading days has resulted in a drop in implied volatility. Consumer hedgers searching for bargains can look to the WTI Feb09-June09 $60/75 call spread strip, currently trading around an average price of $2,600 per 1000 barrels per month. The hedge can be made costless by selling the $43 put in the same tenor.
Singapore, 09:00
The lack of sharp movement in the last few trading days has resulted in a drop in implied volatility. Consumer hedgers searching for bargains can look to the WTI Feb09-June09 $60/75 call spread strip, currently trading around an average price of $2,600 per 1000 barrels per month. The hedge can be made costless by selling the $43 put in the same tenor.
Singapore, 09:00
Opportunities in a Contango Market
The geopolitical premium continues to bleed out of crude prices as Russia and Ukraine look to settle their dispute and resume gas flows. Last week’s poor US unemployment figures continue to reinforce weak consumer demand while traders await further data this week with a sense of trepidation. Along with CPI and PPI numbers, retail demand and industrial production data look set to drag equity and commodity markets lower. The only bright spot in terms of consumer demand may be that as worse economic data is released, the US Congress may be motivated to push for faster action on a larger stimulus plan.
Opec production cuts, near- to medium-term consumer demand destruction and excessive crude inventories contribute much to the current contango market structure. Traders looking for continued weakness in the near-term with the possibility of recovery in the longer-term can take advantage of structures such as the Feb09 through June09 $35 put strip with the July09 through Dec09 $85/95 call spread strip. The combined structure is currently trading around only $2,800 per 1000 barrels per month. This trade provides near-term downside exposure (the Feb-June underlying calendar strip is trading just below $49.00) while also providing long-term upside exposure (July-Dec underlying calendar strip is trading around $55.50) with only $2,800 per month at risk.
Singapore, 09:00
Opec production cuts, near- to medium-term consumer demand destruction and excessive crude inventories contribute much to the current contango market structure. Traders looking for continued weakness in the near-term with the possibility of recovery in the longer-term can take advantage of structures such as the Feb09 through June09 $35 put strip with the July09 through Dec09 $85/95 call spread strip. The combined structure is currently trading around only $2,800 per 1000 barrels per month. This trade provides near-term downside exposure (the Feb-June underlying calendar strip is trading just below $49.00) while also providing long-term upside exposure (July-Dec underlying calendar strip is trading around $55.50) with only $2,800 per month at risk.
Singapore, 09:00
Monday, January 12, 2009
Opec Follow-through Seen in Brent/Dubai EFS
Crude prices ended last week in negative territory with WTI looking set to test the $40 level in early Asian trading Monday morning. Meanwhile, Brent, the North Sea benchmark also traded lower on the week but the WTI/Brent spread has now widened to almost $4 with Brent premium. Similarly, the Brent/Dubai spread has moved into negative territory. These atypical contract moves are a result of follow-through on the part of the Opec producers; the cartel has reduced the supply of their heavy, sour crude oil to the market, while the light, sweet contracts (WTI in particular) are suffering from a supply glut.
The above situation may take several months to play itself out, but the pattern is clear: less oil is coming to the market and those contracts directly concerned are rallying. Hedgers are beginning to take advantage of this phenomenon by buying upside protection for the 2nd half of 2009. Often the protection is cheap enough that it can be made Zero-Cost by selling a put significantly lower than the current market. For instance, the 2H09 WTI $75/90 call spread strip is trading around $2,800 per 1000 barrels per month. For a Zero-Cost strategy, sell the $40 put in the same tenor. With the 2H09 calendar strip trading above $57.50, this consumer hedge provides an average of more than $17.50 of room on the downside.
Singapore, 05:00
The above situation may take several months to play itself out, but the pattern is clear: less oil is coming to the market and those contracts directly concerned are rallying. Hedgers are beginning to take advantage of this phenomenon by buying upside protection for the 2nd half of 2009. Often the protection is cheap enough that it can be made Zero-Cost by selling a put significantly lower than the current market. For instance, the 2H09 WTI $75/90 call spread strip is trading around $2,800 per 1000 barrels per month. For a Zero-Cost strategy, sell the $40 put in the same tenor. With the 2H09 calendar strip trading above $57.50, this consumer hedge provides an average of more than $17.50 of room on the downside.
Singapore, 05:00
Friday, January 9, 2009
RBOB crack shows signs of strength
Following a tumultuous week of market action, RBOB closed the week stronger due to refinery turnaround news and macro index fund rebalancing. Data shows that most petroleum product contracts including crude had to be reduced to rebalance indexes while RB was increased. Distillate cracks had been stronger as NG markets rallied in Europe due to Russian supply concerns. Demand remains weak across the board, which muted the early week rally despite Gaza conflicts. Furthermore, unemployment data in the US reported today was slightly worse than expected, pressuring most markets lower.
Continued RB strengthening may be hedged with calls here, or puts hedging long physical. We are now finally in positive RB crack in the futures market. In general, crude does not look like a great hedge against refined products now as crack volatility remains high.
New York 15h00.
Continued RB strengthening may be hedged with calls here, or puts hedging long physical. We are now finally in positive RB crack in the futures market. In general, crude does not look like a great hedge against refined products now as crack volatility remains high.
New York 15h00.
Wednesday, January 7, 2009
Distillate cracks stonger despite market selloff
A New Year rally has not followed through at this point with a near $6 sell off. This week, however, the news regarding natural gas availability in Europe (Russia) has had an important and significant affect on Gasoil prices (US Heat and Jet). The "crack" (difference of distillate prices such as Jet compared to crude) has expanded by over $3 per barrel due in part to the fact that Europeans pay for natural gas and heating oil (gasoil) with interrelated pricing schemes. The prices are interrelated due to switching ability in the heating market.
Additionally, we are seeing strong indications for a cold winter in Europe, which will support this "crack" expansion.
This situation could persist. With this in mind, using some near term gasoil or heating oil call options strategies would be more effective than crude oil. Longer term, we continue to recommend crude oil call spreads.
Please call or email if there is a particular level you are looking to refresh.
New York 16h13
Tuesday, January 6, 2009
Implied Vol Relaxes
Evidence of Opec production cuts continues to mount with the Brent/Dubai EFS trading at parity. Typically, the lower quality, sour crude of the Dubai benchmark would trade at a discount to Brent or WTI. The narrowing of the spread is a strong indicator of follow-through on the part of regional producers. Meanwhile, geopolitical risks continue to increase as there appears no peaceful end in sight to the Israeli/Gaza conflict and the Russia/Ukraine spat has now spread into the EU, with Russia cutting back gas it claims Ukraine is siphoning off for itself.
Despite the current market uncertainties, implied volatility has dropped off markedly in WTI and Brent options. The cheaper premiums have encouraged hedgers to re-enter the market during the current period of flux. Producer hedgers have looked again to medium-term downside protection in the form of the WTI Cal09 $35/45 put spread strip, currently trading around $2,300 per 1000 barrels per month. This put spread strip can be made Costless by selling the $90 call in the same tenor. The Cal09 swap strip is currently trading around $58.50.
Email, call or IM for further strategies and quotes.
Singapore, 09:00
Despite the current market uncertainties, implied volatility has dropped off markedly in WTI and Brent options. The cheaper premiums have encouraged hedgers to re-enter the market during the current period of flux. Producer hedgers have looked again to medium-term downside protection in the form of the WTI Cal09 $35/45 put spread strip, currently trading around $2,300 per 1000 barrels per month. This put spread strip can be made Costless by selling the $90 call in the same tenor. The Cal09 swap strip is currently trading around $58.50.
Email, call or IM for further strategies and quotes.
Singapore, 09:00
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