Hedging structure recommendations Nov 5, 2021

Consumer:

The front months of the CME HRC Steel curve continue to offer opportunities for consumers to hedge at historically low prices. While the forward curve for both periods is in contango, meaning forward prices are higher than spot prices, consumers can lock in near or below budgeted prices, ensuring input cost targets are met. Options are available for CME HRC, but they are relatively illiquid. Please get in touch with AEGIS for specific strategies that fit your operations.

Producer:

WTI has moved lower since trading as high as $80/Bbl in January. Clients already well hedged should look to swap remaining volume. Producers with substantial volume to add may look to collars if they can tolerate a floor in the low $60s to retain some upside participation. Fundamentals support higher prices through the end of the year. 

Producer:

A downward sloping forward curve is hurting producers hedging into years two and three. We recommend clients that are more price-sensitive to utilize swaps to lock in favorable economics. Producers that can tolerate a lower floor can fight backwardation with a collar. 

Producer: 

We recommend hedging with swaps due to our neutral outlook with a bearish lean for the balance of the summer strip. 

Producer: 

The winter strip is down substantially from its March high. We remain bullish this tenor and recommend utilizing costless collars to take advantage of the asymmetric call skew. 

Producer:

AEGIS holds a bullish view on prices for this tenor, and with call skew elevated even for summer months, producers may find value in costless collars.

Consumer:

Prompt diesel prices have traded lower alongside crude, following a short-lived rally around the start of the year, driven by anticipation of new US sanctions on Russia. Fears of a weakening global economy due to US tariffs have weighed on product prices in recent weeks.