WTI oil prices have continued yesterday’s gains 44.74, an increase of 24 cents from last close amid speculation on weekly supply data due later in the US session that will show crude inventories in U.S. The U.S. EIA weekly report on crude oil inventory is scheduled to be released at 14:30GMT.
Demand – Ripping strong product demand is supporting margins and bolstering high crude runs. 4W average product demand was very robust, increasing by 770 kb/d to 20.0 Mb/d (+4.0% YoY). Margins are strong and runs are expected to climb seasonally.
Supply on weekly basis – US crude supply fell by 15 kb/d, entirely due to a drop in lower 48 production.
4W average US crude output is down by 413 kb/d (-4.4% YoY), while 4W average US crude imports are up by 89 kb/d (+1.2% YoY). US crude exports are actually down by 142 kb/d to 352 kb/d (-28.8% YoY).
Oil prices jumped recently as a huge wildfire in Canada's oil sand region knocked out over a million barrels in daily production capacity, contributing to a significant tightening of markets.
Crude prices fell in earlier last week as oil sands production in Canada restarted after forced closures due to wildfires, and as already record-high inventories especially in the United States grew.
International Brent crude oil futures LCOc1 were down 28 cents at $45.24 per barrel at 0909 GMT. U.S. West Texas Intermediate (WTI) futures CLc1 were down 44 cents at $44.22 a barrel.
Technically, as the bulls have been showing clear buying interest ever since the price reached lows of 2009, to substantiate the leading indicators on monthly are converging beautifully to the current upswings that would suggest the strength in prices at this point, the indications on daily charts are for little corrections but any time prices may rally.
So, let’s suppose following spreads as shown in the diagram, construct with longs on 2W in the money WTI +0.51 delta call option (1% strike) and simultaneously, short an out of the money call (2% strike) of 1W tenor with positive theta values.
This would mean that the chances of upside risks of would be taken care by long positions (ITM calls).
The hedging cost would be reduced by short positions if the underlying commodity price rallies but within short strikes in next 1 week’s time or prices stay stagnant within shorter tenor (should not go beyond these levels in 1W).
Vertical bull spread strategy is employed if you think that the price of the underlying WTI crude will rise reasonably in the near term but within a bracket of 2% upward range in 1 week.
Please be noted that the tenors used in the diagram are for demonstration purpose only, use accurate expiries as stated above.
The material has been provided by InstaForex Company – www.instaforex.com