Commodity and energy prices have increased strongly over the last years. The price of crude oil roughly went through a ten-fold rise from 1999 to 2007.
The big price movements have increasingly affected financial results of businesses using or producing commodities and energy. Most companies have few or no ways to affect the prices they are exposed to.
A rational action would thus be to reduce price uncertainty using commodity and energy derivatives. AdvantagesActive management of price risk improves predictability, and makes it easier to get focus on core business and competences. Steady financial results over time coupled with reduced risk of financial defaults could lower cost of funding, which in turn could open new investment opportunities.
Your business' price risk profile could be aligned with overall strategy by using the relevant derivatives or combination of such. Examples of instruments available:
- Swap-contracts
A hedge agreement which involves swapping a fixed with a floating price for an agreed upon period in the future
- Futures/forwards
To buy/sell a certain volume in the future at a fixed price
- Options (acquisition of option)
A contract giving you a right – but no obligation – to buy/sell a certain volume in the future at a fixed price
- Combination of derivatives
Using options and swaps to form a price range (maximum/minimum prices)
DNB Markets offers consulting, market analysis and recommendations in connection with commodity hedging.
Clients do not need to become an exchange member of the different exchanges and clearinghouses, as DNB would be the counterparty in all transactions. The pricing, administration and settlement of commodity derivatives are similar those of FX/Interest products offered by DNB markets.
Please contact us for further information on price hedging using commodity derivatives.
