The Mercatus Energy Pipeline

Three-Way Collars: A Conservative Airline Fuel Hedging Strategy

Posted on Thu, Jul 28, 2016

In a previous post, An Alternative Oil Hedging Strategy Using Three Way Collars, we explored how oil and gas producers can implement a conservative hedging strategy utilizing a combination of call and put options to structure a strategy known as a three-way collars. Today we're going to explain how large fuel consumers, such as airlines, can also use three-way collars as a conservative fuel hedging strategy.

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As Crude Oil Approaches $40/BBL, Warren Buffet Provides Great Hedging Advice

Posted on Wed, Jul 27, 2016

Are crude oil prices headed back below $40/BBL or even $30/BBL? Prompt NYMEX WTI futures settled last night at $42.92/BBL, while prompt Brent futures settled at $44.87/BBL and both are trading lower by an additional 75 cents at the moment. Recall it was only a few months ago that we witnessed crude oil trading below $30/BBL before the recovery back above $50/BBL.

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Energy Hedging 101 - Futures

Posted on Tue, Jul 26, 2016

Given the recent volatility in crude oil and refined products prices, as well as natural gas prices, we thought it would be beneficial to take another look at the various energy hedging instruments available to the various participants in the energy commodity markets.

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An Introduction To Crack Spread (Refiner) Hedging

Posted on Mon, Jul 25, 2016

Over the course of the past year, refining profit margins have been all over the map. As an example, over the course of the past year, the WTI-NY Harbor ultra-low sulfur diesel (ULSD) crack spread has traded as high as $22.92/BBL and as low as $6.89/BBL while averaging $14.03/BBL. Crack spreads on other crude oils (Brent, Light Louisiana Sweet, etc.) and various refined products (diesel, gasoline, jet fuel, etc.) have been similarly volatile. 

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Is Your Team Well Prepared to Manage Your Energy Price Risk

Posted on Thu, Jul 21, 2016

As many companies are currently planning for 2017 and beyond, now is an ideal time to review your energy risk management program, including whether your team is prepared for the challenges of the upcoming year. Regardless of whether you're a Fortune 500 company or a small, family owned business, you need to determine whether or not your team your team is well prepared to do all of the following:

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Six Key Steps to a Succcessful Energy Hedging Program

Posted on Wed, Jul 20, 2016

1. Identifiy, Analyze and Quantify All Risks

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Bunker Fuel Hedging & Price Risk Management - Call Options

Posted on Tue, Jul 19, 2016

In the first post in this series, Bunker Fuel Hedging & Price Risk Management - Swaps, we examined how companies in the maritime and shipping industries can hedge their exposure to volatile bunker fuel prices with a strategy known as a fixed price swap.

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Oil & Gas Hedging with Deep Out-of-the-Money Options and a Limited Budget

Posted on Mon, Jul 18, 2016

The need for effective hedging and marketing is greater in the current price environment i.e. $50/BBL than it is in a higher price environment i.e. $100/BBL. Indeed, high prices can mask the consequences of poor commodity price risk management. At $50/BBL, oil and gas producers are greatly exposed to price volatility. Every $1 change in the price of oil is felt more intensely at these levels because margins are quite thin, many producers’ credit facilities are maxed out and lenders are nervous. Most producers are conflicted: they face real risk of lower prices, but they fear missing out on higher prices, and they have limited hedging budgets. Budgets are squeezed, but price risk remains present.

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Hedging Oil & Gas With Three-Way Collars

Posted on Mon, Jul 18, 2016

This post was originally written several years ago but has been updated several times since then as it is regularly referenced in other articles regarding oil and gas hedging with three-way collars i.e. Oil Crash Exposes New Risks for U.S. Shale Drillers.

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An Introduction to End-User Natural Gas Hedging - Part II - Swaps

Posted on Mon, Jul 18, 2016

This post is the second in a series where we are exploring the various hedging strategies which are available to commercial and industrial natural gas consumers, also known as end-users. You can access the first post via this link - An Introduction to End-User Natural Gas Hedging - Part I - Futures. In subsequent posts we'll explore how commercial and industrial natural gas consumers can hedge with options, basis swaps and more complex instruments.

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