Energy markets continue to show indecisiveness despite continuing to trade around the top of the recent range. Questions remain as to whether crude oil has found a new trading band between $75 and 85. At the money implied volatility reveals the ambivalence of the market, with the remaining nine months of 2010 within half a vol of 30%.
Expect the strong gasoline crack to result in inflated inventories in the West, unless recent positive demand readings continue (weekly Mastercard consumption figures show US demand increasing to over 9.5MM b/d). On the flipside, Asian demand for crude feedstock remains anemic in the midst of seasonal refinery maintenance. This has partly resulted in Asian Middle Distillate cracks strengthening to almost a yearly high amidst firming demand and lingering questions regarding the future of Chile's refining facilities.
Consumer hedgers looking to protect against a rise in Singapore 180cst Fuel Oil prices during the summer months can purchase $50 of protection in June through August between $500 and $550 for zero cost by accepting a price floor around the $430 level. This hedge requires the posting of zero premium and no losses would be incurred if final settlement remains at or above the $430 level.