Fuel Hedging Agreement

There are three primary futures contracts that are usually used for fuel protection: ULSD (Ultra-Low Sulfur Diesel) and RBOB gasoline traded at CME/NYMEX and diesel traded at ICE. Whether you want to protect the cargo hold, diesel, gasoline, kerosene or any other refined product, these three contracts serve as the main benchmarks around the world. In addition, there are many other contracts (futures, swaps and options) for fuel safety, most of which are linked to one of Singapore`s major global trade nodes, the Gulf Coast of the United States (Houston/New Orleans) and NW Europe/ARA (Amsterdam, Rotterdam and Antwerp). In addition, the CME/NYMEX futures contract was previously known as fuel oil and, as such, it is still marketed under the symbol HO. For more information on the transition from fuel oil to ULSD, see NYMEX fuel oil concludes the switch to ultra-low sulphur diesel. In addition, the price at which Ryanair has entered into future contracts for the 2021 financial year is 632$US tonne, indicating that the market expects kerosene prices to remain relatively stable next year. Reserve: Most companies will find that hedging their fuel price risk is not ideal, given that futures contracts expire on a given day of the month and most companies consume fuel every day. Therefore, many companies believe that swaps (or futures that serve as „look-a-likes” for swaps) serve as a better tool, since most fuel swaps are usually charged at the average monthly price (read more in a future article). During the period 2009-2010, studies relating to the aviation industry showed that the average coverage rate was 64%.

The ratio tends to increase, especially in times of peak stress. Lufthansa Group`s strategy looks slightly different, as it uses both futures and risk hedging options. It is interesting to note that the approach varies according to the media within the group. For example, all charter flights are fully covered at the time of signing the contract. The traditional airlines of the group, Lufthansa German Airlines, SWISS and Austrian, follow the coverage plan below: given the considerable volatility of fuel prices in recent weeks, we have received many requests from companies that, for the first time in their history, are interested in developing a fuel protection program. If you don`t have the knowledge to consider yourself a fuel safety expert, this contribution, along with a few others we`ll be publishing shortly, will help you better understand the most common fuel protection strategies available to commercial and industrial fuel consumers. In this hedging scenario, an airline should expect prices to rise in the future. . . .