- Within the past few months, gasoline prices skyrocketed almost 60%. Volatilities are causing significant price fluctuations in the market.
- Strong international economic growth/OPEC cuts and dollar devaluation all lead to oil price uncertainty.
- Since 1995, Industry price volatility has continuously increased which means more budgetary concerns and more importantly greater potential for a fuel price disaster.
What is a Hedge?
Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the organization to benefit from an investment activity.
- Financial Hedge - An investment that is undertaken specifically to reduce or cancel out risk, without actual delivery of the commodity that is being hedged. (Examples: Caps, Swaps and Collars)
- Physical Hedge - A method of risk reduction, that ends up with the delivery of the actual commodity that is being hedged. (Example: Forward Agreements)
