Fuel Hedging

Fuel Hedging is a contractual tool some large fuel consuming companies, such as airlines, use to reduce their exposure to volatile and potentially rising fuel costs. A fuel hedge contract allows a large fuel consuming company to establish a fixed or capped cost, via a commodity swap or option. Large fuel consuming companies enter into hedging contracts to mitigate their exposure to future fuel prices that may be higher than current prices and/or to establish a known fuel cost for budgeting purposes. If a large fuel consuming company buys a fuel swap and the price of fuel declines, the company will effectively be forced to pay an above-market rate for fuel.
Posts about Fuel Hedging
  • US airline wins Dodd-Frank real-time reporting delay

    … into fuel hedging transactions with dealers, even though the data published by SDRs is supposed to be anonymous. The problem, says Southwest, is that many of its hedging transactions involve long-dated oil derivatives with maturities of two or more years – typically swaps or options on West Texas Intermediate (WTI) or Brent North Sea crude oil. Since…

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