Crude and product markets suffered severe pullbacks in heavy trading Tuesday afternoon in London and NY. While concerns focus largely on European debt, Chinese manufacturing and unstoppable oil slicks in the Gulf of Mexico, it is important to single out the possible longer-term impact of the deep-water drilling disaster. Stricter regulations and an even more strenuous approval process for drilling off the US coast is sure to follow this incident.
Watch for a further weakening in the already very negative WTI spreads as high Cushing stocks and refinery slack pull the front-months lower while longer-term supply issues keep a price floor under back-month contracts.
Bunker consumers can look to lock in $75/month of upside protection in the third quarter of 2010 by owning the $525/600 call spread. This strip can be purchased for zero premium by accepting a leverage price floor at $440 in the same tenor.