Many energy professionals realize they must identify the risk that price changes
pose to their business and take protective action. However, it can be a surprisingly
difficult task complicated by the dynamics of the energy markets.
For example, you may want to protect yourself against higher prices while passing
decreases along to customers, or expand storage at seasonally advantageous prices,
or establish floor or ceiling prices for marketing purposes. Perhaps doing all three
seems at first like the way to go. Our job is to help you identify the magnitude of
potential risks and then help you clarify the goals you’re trying to achieve.
We’ll then recommend an appropriate hedging program using futures contracts,
and options on futures – essentially agreements to buy or sell energy products
at some point in the future. Futures market prices closely match cash market prices,
making futures an effective substitute for physical transactions. These contracts are
available for crude oil, heating oil, gasoline, natural gas, propane, and
many other energy price risks.