Source: LSEG
To paraphrase a saying from the software industry, volatility in the energy market isn’t a ‘bug’…it’s a feature. The chart above of the continuous NYMEX ULSD futures contract proves the point.
If you ship fuel on a pipeline or hold inventory in a storage tank, your bottom line is exposed to the possibility of loss from price fluctuations. Many fuel marketers deal with this risk by hedging. The goal of hedging is to defend your profit margin against energy price volatility and allow you to concentrate on growing your business.
Every company that hedges has asked the question, “How do I start?” Most companies start by drafting a hedging policy statement. A hedging policy serves two critical purposes:
- Helps ensure that top management and the company’s board of directors are aware of the hedging activities used by the business’s risk managers.
- Establishes the risk management framework and defines procedures and controls for the effective management of the company’s hedging activities.
Every business is different but as you begin formulating a hedging policy for your company, it is helpful to have a robust discussion around the subjects below.
POWERHOUSE works with clients to help protect profit margins and grow their businesses by designing and implementing hedging strategies – including hedging policy statements.
We provide a suite of additional services including practical hedging training, support for marketing, and software which coordinates physical products and financial hedges.
Disclaimer
This material has been prepared by a sales or trading employee or agent of Powerhouse Brokers LLC and is, or is in the nature of, a solicitation. This material is not a research report prepared by Powerhouse Brokers LLC. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
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