quick update - crude vol + Brazil CDS

OIL

A crazy day in oil. WTI failed to break 45$ and we rallied 8.7% after that and tested 49$! The rally started as NY walked in, however bearish stats interrupted it. Nevertheless, news that North Dakota November production was flat again caused some questions, as now the 2m growth has also been flat. Last year’s respective 2month growth was 45kbd...Some are blaming the weather, which is definitely a factor. However, 1 interesting thing is that the state said that it needs 130 rigs to maintain production at current levels; it has 152 currently operating (this number has dropped from 180) and that it foresees only 120 by Q3. So N Dakota could start DROPPING mom by late Q2. In conjunction with the relentless gasoline rally due to large planned and unplanned TARs for this time of year as well as the last day of the GSCI index rebalance (although this is 4k wti/day and 8k bre per day-hardly enough I'd say to explain the 400K+ volume in both prompt crude futures) caused to a massive short covering. WTI spreads and BRE spreads were also extremely bid term-what as these happens have been there consensus is critical...On trades stats, over they the were past bearish couple of as months...I we built 5.4M think bbls oil will overall try to off test 50$ the back in of the a sizeable short rebound in imports and drop in runs. P2 built 2.3M, Cush built 1.8M, and P3 built 900k. Products also built, although considerably less than the past few weeks...

OIL VOLS

Vols were offered all day, even before the large spike. We saw interest in selling Cal15 vols across the board, and there were also big sellers of call6 vol in the market. As it still seems worth being long gamma, the back is selling off more than the front. H5/Z5 WTI is above 13 vols!!! There has been a large absence of any type of producer business so far this year as far as I can tell, and January is typically one of the busiest producer hedging months:11:30; I think that vol selling will continue, especially if we break 50$ to the upside in the prompt...

Base Metals

The base complex tanked in Asian trading as stop losses were hit on a downward revision in global growth forecasts by the World Bank from 3.4% to 3% due to the underperformance of the Eurozone, Japan and some major emerging markets despite lower oil prices. The ECJ commenting that the ECB's plans on buying government bond is legal did little to stem the flow. Copper led the way, hitting 5 year lows driven by the breaking of the $5800 mark where there were a lot of puts sold with potentially another big slug of option selling at $5500 to come and concerns about economic growth in China is having an impact on predicted demand in the region. However there are concerns that fundamentally there could be a bullish story lurking. Cuts in copper mine output for geological and technical reasons such as the 150kMT cut at Escondida and the 100 KMT cut at Kennecott are raising questions as to whether the global surplus expected in 2015 with Macquarie expecting the market to be balanced. The late arrival of the rainy season in Zambia and Democratic Republic of Congo may have a significant impact on open pit mining in both regions, cutting supplies in coming months. There also remains one last dominant holder of LME stocks with over half of current stocks who could reap a handsome reward if they hold their position, given that the market is $80 backwardated, indicating a tight market. Aluminium remained relatively firm but still followed the complex down. Around 500 kMT of Chinese smelting capacity is likely to close in coming months as domestic prices drop below the cost of production. China expects to add 4.5 mMT of new capacity in 2015 but up to 2.5 mMT of existing capacity is at risk and could significantly offset this figure. Nickel, Zinc and Lead prices recovered strongly in the afternoon but came off towards the close.

Shanghai Aluminium on warrant stocks are up 21.62% to 56 kMT. LME Aluminium on warrant stocks are flat at 1839.8 kMT. Shanghai Copper on warrant stocks are up 23.08% to 48.4 kMT. LME Copper stocks are up 2.4% to 170.9 kMT. LME Nickel stocks are down 2.55% to 317.8 kMT.

Copper Vols are up 5.28%, Ali Vols are down 0.46%, Nickel Vols up 6.28%, Lead Vols are up 2.53% Zinc Vols are up 1.78%

Upcoming Data

14/1- EC Industrial Production SA MoM-Sury 0%, Actual 0.2%, Prior 0.1%, Revised 0.3%

14/1- US MBA Mortgage Applications- Actual 49.1%, Prior 11.1%

14/1- US Retail Sales Advance MoM- Actual -0/1%, Actual -0.9, Prior 0.7%, Revised 0.4%

14/1- China Money Supply YoY-Actual 12.5%, Prior 12.3%

Jeffrey — see crude oil trading commentary below.

Implied vols went down and the index is slightly up.

Mar15 WTI vol (which expires in Feb15) is down to 47.80%. More info below.

Brazil Sy CDS closed at 197/201. When you entered the trade it was 201/205. The 4bps tightening with a spread DVO1 of approximately 4.5k should lead to approximately -18k P+L on the position.

BRL appreciated 1.02% today, so being short BRL on an NDF for same notional should have yielded about -100k PnL.