Oil markets seem to have hit the doldrums at the moment, with supply cutbacks encountering weak demand. Following a tangible rise, the two grades of crude oil – Brent from the North Sea and WTI from the USA – are consolidating at around the USD 80 level. Where the journey goes from there will depend in particular on China. Should the Beijing government’s economic stimulus packages take effect, the oil demand of the world's largest importer of black gold will also recover. This in turn will come up against a level of supply that has been intentionally reduced by the producing countries, which could drive the price further up towards the USD 100 mark. Brent last traded in the three-digit price range exactly one year ago.
Take care, though – a recovery in the Middle Kingdom's economy is no more set in stone than a soft landing in Europe. In the view of Claudio Galimberti, research director at Rystad Energy, the prospects for oil in the fourth quarter will “depend on the macroeconomic situation in China primarily, albeit it looks like Saudi will continue to address that via their cuts, if needed.” Investors can now deftly counter the possible further price increases associated with the supply shortage thanks to two new capital protection certificates with participation. The instruments protect against price swings, but at the same time participate in price rises.
The capital protection certificate quoted in Swiss francs covers the two oil grades, Brent and WTI, and participates 100% on the upside in the equally weighted commodities basket. This participation does not end until the cap level at 130%. This means that holders of the certificate benefit 1:1 from the performance of the basket up to that level. On the other hand, there is no threat of losses, because at the end of the three-year term the nominal is 100% protected. The product consequently allows a fully-protected long investment in the two crude oil grades.
The capital protection certificate with participation denominated in US dollars offers even more pep. Like the franc version, the product covers the two oil grades, Brent and WTI, which make up an equal share of the basket. However, holders of the certificate do not profit 1:1 from the price movement, but actually enjoy a leveraged benefit. The participation level is a hefty 200%, which means that price rises of the commodities basket are doubled. Although there is also a cap in the structure, this is only located at 140% of the initial level. Given the multiplier function, this makes it possible to realise a profit of 80% of the nominal. On the subject of the nominal, in the USD product this is also fully protected at the end of the term. Caution is required, though, because prices in the capital protection certificates can fall below the starting level within the three-year term.
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