Monday, August 10, 2009
Friday, August 7, 2009
Record levels of U.S. distillate fuel exports
The U.S. Energy Information Agency reports that monthly U.S. exports of distillate fuel are at record levels, driven partially by unusually high U.S. distillate fuel inventories.
Thursday, August 6, 2009
Tuesday, August 4, 2009
Oil Continues Higher, Singapore Fuel Oil 180cst Hedging
Energy markets took a breather yesterday during what appears to be a relentless march higher. Months, if not several quarters ahead of any significant return to demand, the current rally in the major crude benchmarks WTI and Brent has everything to do with a renewed demand for relatively riskier assets. This translates to day-to-day trading activity focusing almost exclusively on broader investment trends. The United States EIA inventory numbers due out tonight are expected to take a somewhat neutral tone, thus any surprise draws would give further impetus to the underlying rally, while builds may simply continue to be ignored.
Consumer hedgers (of any product) may wish to keep an eye on both WTI and Brent as the $75 level looks to be broken shortly. Twice we have bounced off this number in recent months as fears of the high price of crude derailing any nascent recovery begin to take hold.
Bunker prices continue to march higher on the back of increasing demand and refinery cuts, thus adding significant pain to shipping companies across the globe. Hedging strategies which utilize only swaps work best when a market simply moves in one direction. As the Western benchmarks approach $75 and another pull-back becomes possible, consumer hedgers can use options to take advantage of price swings lower while maintaining some measure of protection on the upside. The Singapore Fuel Oil 180cst Q409 $450/mt price ceiling (call option) can be owned for zero premium by accepting a price floor around $425. In order to reap the benefits of a possible (but not wholly likely) downward move in fuel prices in the final quarter of the year, hedgers can own the $450/500 call spread for zero premium by accepting a price floor at $375. This trade allows consumers to enjoy a healthy price drop of more than $60 before hedging losses begin while also providing $50 of protection per month above $450.
Singapore
Consumer hedgers (of any product) may wish to keep an eye on both WTI and Brent as the $75 level looks to be broken shortly. Twice we have bounced off this number in recent months as fears of the high price of crude derailing any nascent recovery begin to take hold.
Bunker prices continue to march higher on the back of increasing demand and refinery cuts, thus adding significant pain to shipping companies across the globe. Hedging strategies which utilize only swaps work best when a market simply moves in one direction. As the Western benchmarks approach $75 and another pull-back becomes possible, consumer hedgers can use options to take advantage of price swings lower while maintaining some measure of protection on the upside. The Singapore Fuel Oil 180cst Q409 $450/mt price ceiling (call option) can be owned for zero premium by accepting a price floor around $425. In order to reap the benefits of a possible (but not wholly likely) downward move in fuel prices in the final quarter of the year, hedgers can own the $450/500 call spread for zero premium by accepting a price floor at $375. This trade allows consumers to enjoy a healthy price drop of more than $60 before hedging losses begin while also providing $50 of protection per month above $450.
Singapore
Tuesday, July 28, 2009
Singapore Fuel Oil Remains Firm
Energy markets began to pull back on Tuesday as traders question the legitimacy of the recent commodity/equity rally. The US Dollar certainly looks oversold at this stage and it wouldn’t be surprising to see a greenback rally force crude prices lower through the month of August. Yesterday’s trading in the western benchmark crudes displayed significant technical weakness while demand for black gold is expected to remain weak throughout the third quarter. However, there are several factors that could easily lead to one more price spike before the market pares back its gains: weak July/Aug trading volumes paired with the ever-present threat from hurricane season in the Gulf of Mexico remain an underlying bullish threat.
Mirroring equity markets, most commodities have pushed over or near highs for 2009 mainly on the back of anaemic fundamentals. That is with the exception of bunker fuel, much to the chagrin of tanker operators and other consumers of the crude by-product. Much has been written as of late regarding Fuel Oil’s recent rally- actually with some fundamental backing to it (refinery upgrades and producer cuts of heavy, sour crude lead many traders to believe bunker prices will continue to power upwards for the foreseeable future).
With this level of uncertainty in the market, it would benefit bunker consumers to hedge a portion of their fuel needs both in the swaps and options markets. Aside from positioning themselves to lock-in future prices at today’s levels by buying swaps, costless collars and similar structures provide some downside advantages while also providing full upside price protection above a certain price. For example, in Singapore Fuel Oil 180cst, unlimited upside protection above $450 can be owned in Sept through December ’09 by accepting a price floor at $390. Similarly, consumer protection between $450 and $500 can be had by accepting a much lower price floor of around $355. This strategy currently avails the consumer of approximately $60 of downside price movement paired with $50 of protection above $450.
Singapore
Mirroring equity markets, most commodities have pushed over or near highs for 2009 mainly on the back of anaemic fundamentals. That is with the exception of bunker fuel, much to the chagrin of tanker operators and other consumers of the crude by-product. Much has been written as of late regarding Fuel Oil’s recent rally- actually with some fundamental backing to it (refinery upgrades and producer cuts of heavy, sour crude lead many traders to believe bunker prices will continue to power upwards for the foreseeable future).
With this level of uncertainty in the market, it would benefit bunker consumers to hedge a portion of their fuel needs both in the swaps and options markets. Aside from positioning themselves to lock-in future prices at today’s levels by buying swaps, costless collars and similar structures provide some downside advantages while also providing full upside price protection above a certain price. For example, in Singapore Fuel Oil 180cst, unlimited upside protection above $450 can be owned in Sept through December ’09 by accepting a price floor at $390. Similarly, consumer protection between $450 and $500 can be had by accepting a much lower price floor of around $355. This strategy currently avails the consumer of approximately $60 of downside price movement paired with $50 of protection above $450.
Singapore
Wednesday, July 22, 2009
Trading Ranges, Singapore Fuel Oil Consumer Hedging
Crude prices remain mired in the $64 – 66 range despite Department of Energy inventory figures showing a draw of 1.8m bbls. The figure was largely in line with traders’ expectations, but conflicted sharply with that of Tuesday’s API report showing a build in crude stocks. The numbers in the DOE report were largely the result of a slight decrease in crude runs paired with drooping imports. Despite seven weeks of crude inventory draws, US stocks remain significantly above levels from the previous year.
July and August typically exhibit a moribund trading pattern with decreasing volumes but leaning more to the bullish side. Commodity traders expecting equity markets to pull crude prices higher may have to wait until holiday season is over, as both markets have experienced recent rallies and appear to have entered a holding pattern.
Bunker consumers seeking cheap but effective upside protection in the 4th Quarter of the year can look to a Singapore 180cst Fuel Oil costless 3-way structure. The Q409 $425 / 475 call spread can be owned for zero cost by accepting a price floor at $345. This hedge allows for $50 of upside protection per month above $425 with no premium at risk above the $345 level. With the Q409 underlying trading just under $400 and implied vol in the mid-40’s, the $345 price floor is almost 5 standard deviations to the downside and a level not broken below since $350 became a solid price floor two months ago. Regardless, the hedge allows for more than $50 of downside price movement (good for the consumer) with $50 of upside protection above $425 with no premium at risk upon settlement at or above $345.
Singapore
July and August typically exhibit a moribund trading pattern with decreasing volumes but leaning more to the bullish side. Commodity traders expecting equity markets to pull crude prices higher may have to wait until holiday season is over, as both markets have experienced recent rallies and appear to have entered a holding pattern.
Bunker consumers seeking cheap but effective upside protection in the 4th Quarter of the year can look to a Singapore 180cst Fuel Oil costless 3-way structure. The Q409 $425 / 475 call spread can be owned for zero cost by accepting a price floor at $345. This hedge allows for $50 of upside protection per month above $425 with no premium at risk above the $345 level. With the Q409 underlying trading just under $400 and implied vol in the mid-40’s, the $345 price floor is almost 5 standard deviations to the downside and a level not broken below since $350 became a solid price floor two months ago. Regardless, the hedge allows for more than $50 of downside price movement (good for the consumer) with $50 of upside protection above $425 with no premium at risk upon settlement at or above $345.
Singapore
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