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Crude stocks drew by 2.3 Mb (vs. -2.0 Mb expected), and Cushing saw a small build of 0.2 Mb (vs. -0.1 Mb expected). Weekly refinery runs jumped by 319 kb/d to 16.86 Mb/d, while 4w av. runs remained flat at 16.70 Mb/d.
Total US production rose by 9 kb/d due to Alaskan supply increasing by 38 kb/d; lower 48 output declined by 29 kb/d. Imports were up by 293 kb/d to 8.13 Mb. Stocks remained far above 5y highs; we expect gradual seasonal declines through the end of August.
Hedging Strategy:
We had advocated a put ratio back spread around a fortnight ago anticipating recent slumps, below is the weblink for more reading on that write-up, but for now, the energy commodity is showing up some strength at $44.50 levels (WTI crude prices) and therefore we devise the hedging strategy accordingly.
So, as shown in the diagram, we would like to deploy longs in 1M in the money WTI +0.51 delta call option (1% strike)and simultaneously, short an out of the money call (1% strike) of 1W tenor with positive theta or closer to zero.
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 as shown in the diagram if the underlying commodity price rallies after 1 week and prices stay stagnant within shorter tenor (should not go below 1% in 1W).
Vertical bull spread strategy is employed if you think that the price of the underlying WTI crude will rise reasonably in the longer term. Please be noted that the expiries shown in the diagram are only for demonstration purpose, use accurate tenors as stated above.
