What Is Petroleum Hedging?

Hedging by definition is the transfer of risk. For those who are connected with the commodity markets, this usually means ‘price’ risk associated with the volatility and movement up or down in the price of crude oil, gasoline or diesel fuel, etc. At Powerline, we use financial or ‘paper’ tools to help customers manage that underlying risk (i.e. protect and enhance margins). The instruments we use lay alongside, and work in conjunction with, your activities/efforts in the physical market, providing another tool to help clients enhance bottom line results. Commercial clients, producers, and consumers of energy can reduce both their physical (market or supply) and price risk using financial derivatives. The principal risk management instruments available to participants in the energy markets are the versatile futures and options contracts.

 


 

Who Should Hedge?

Any company or entity whose operating margin or bottom line P&L results are impacted by decreasing or increasing commodity prices and/or price volatility should consider hedging against price risk. Examples of industry sectors with energy price risk:

  • Crude Oil & Natural Gas Producers
  • Oil Refiners & Ethanol Processors
  • End Users (Heavy Construction, Manufacturing, etc.)
  • Propane Marketers & Natural Gas Consumers

 


 

How Hedging with Powerline Can Help Your Business

Within the realm of the established commodity markets traded around the world, the energy complex has historically proven to be one of the most volatile. With limited exposure and transparency on the public exchanges, effective tools to manage price risk and market volatility are of particular importance to fuel producers/distributors/consumers. Whether it’s locking in a profitable margin, or protecting an input cost, Powerline can provide clear and concise hedging solutions for wide array of energy clients.