Crude Oil Hedging

Content

• Preface
• Introduction
  • Hedging instruments
  • Purposes of hedging crude oil
  • Volatility reduction
  • Hedge gain maximization and other extensions of risk management
  • Speculation versus hedging
  • Hedgemasters
  • Portfolios
• Five hedging strategies
  • Pure futures strategies
  • Always selling 12 months forward
  • Selectively selling three months forward
  • Selling forward in backwardized markets
• Pure options strategies
  • Using plain puts to obtain $15 insurance
  • Using plain puts to lock $19 budget price
  • Selling options
• Options combination strategies
  • The bear spread
  • The straddle
  • The strangle
  • Collars
  • Hedging by condition: backwardized and contango markets
  • Hedging in bear markets
  • in-, out-of-, and near-the-money options
  • Layer upon layer
  • Exotic (Asian) options strategies
  • Insurance instruments
  • Three forces for pushing for insurance company involvement
  • Sample insurance instruments
  • Blending risks with insurance programs
  • Conclusions: insurance versus derivatives
• West Texas Intermediate (WTI) market depth, liquidity, and hedging effectiveness
  • Market liquidity
  • Concepts
  • Measurement
  • Market depth
  • Results
  • Conclusions
  • WTI and Brent: who leads and who lags?
  • Results
  • Conclusions
  • Corellations and hedging effectiveness
  • Risk management example
  • A crude hedging portfolio
• Conclusions
  • Winners and losers
  • Energy consumers
  • The last word: does basis risk render all of this moot?
• Notes
  • Bibliography
  • Appendix: tables and charts summarizing the outcomes of futures and options strategies under different market conditions and expectations