Bearish year-end factors appear to have finally gotten the better of the energy markets as the major crude benchmarks broke below recent support levels. Fundamentals evidently weighed heavily on prices; particularly for the WTI contract as US inventory levels at Cushing, Oklahoma continued to build. Adding further downward pressure were surprising builds in unleaded gas and distillate storage as refiners looked to take advantage of slightly less-than-anaemic margins. Pair that with lacklustre demand increases and you get an across the board drop in prices.

Hedge funds and investors also have been looking to decrease long positions going into the year-end. This is a seasonal occurrence which was given extra life as a result of the surprisingly positive unemployment numbers seen out of the US earlier this week (which resulted in a stronger dollar).

Consumer hedgers looking to protect against bunker prices rising in the first quarter of the new year can take advantage of the recent drop in prices to lock in a price cap at $500 pmt in Singapore Fuel Oil 180 cSt for only about $20. Similarly, the $500/600 1Q10 call spread can be owned for zero cost by accepting a price floor around $400 pmt.  This trade results in no hedge losses at or above $400 while providing $100 of upside protection in each month of Q1 above $500.