Energy Price Risk Management & Hedging

This intensive course will equip you with a detailed grounding in the fundamentals of energy price risk management and hedging strategies. You will learn the practical tools and techniques that can be utiltised to manage risk more effectively and make better decisions in times of oil price volatility

Course Highlights

Over two highly practical days, you will:

Understanding the tools and techniques to manage oil price hikes
Cost factors and risks in energy markets
Practical fuel hedging strategies
Applications of derivatives for the fuel oil, power, aviation and transportation sectors
Establishing an energy hedging programme – procedures and responsibilities
Making strategic use of hedging tools

For details of the course trainer, please download the course brochure

Course Programme

Industry Dynamics and Character of the Energy / Petroleum Sector

Understanding the phenomenon of current oil price hikes
The outworking for OPEC and its decisions on production
Impact of their decisions on the market

Cost Factors and Risks in Petroleum as it Relates to End Users

What are the key cost factors that put companies at risk from a petroleum perspective for each step in the process?
– Crude exploration and production
– Refining
– Trading
– Transportation and storage
– End users / consumers

Strategic Oil Price Risk Management

What are the objectives in risk management?
Alternatives to managing risks posed by various cost factors:
– Fixed prices from suppliers
– Purchasing requirements in advance
– Sales prices to customers linked to petroleum variability
– Hedging

Fuel Hedging: What Works?

What is it and how does it work?
Futures markets, the underlying source
A zero sum game!

Why Companies Hedge

Adding to the company’s bottom line
Speculation
Creating a perception to stockholders
Protecting against upward price spikes
Locking in budgets
Locking in margins
Meeting competition

Using Hedging Tools Available

Swaps
Caps
Collars
Options
Futures contracts

How These Instruments and Their Underlying Markets are Created

“Market Makers” - swaps or commodities brokers
How markets work
How can you participate in creating hedging opportunities

The Advantages and Disadvantages of the Various Hedging Alternatives

Swaps
Caps
Collars
Purchase and hold inventory
Lock in fixed price with supplier
Options
Futures contracts

Overview of Oil Exchanges (NYMEX, IPE, Shanghai Futures Exchange, Russia Exchanges)

How do they work?
Why use them?

Establishing a Petroleum Hedging Programme

Percentage of your business impacted by petroleum prices
Financial condition of your company
Internal views of risk and risk management
Is upper management well informed as to the pitfalls of hedging?
Does the size of company play a role in whether and how much to hedge?

Defining Goals and Establishing Procedures and Responsibilities

What is your company’s objective in hedging?
Who will execute and oversee program?
How will decisions be made as to which hedging alternative to use?
How are accounting issues handled?
To whom and in what form will hedge results be reported?
Who is ultimately responsible?

Selecting Appropriate Hedge Techniques

Matching hedge instruments with company objectives and limitations
Long term vs short term hedges
Protection of precise prices vs price ranges
Caps and options vs swaps and futures
Collars as hybrid protection

Practical Hedging: People in Key Hedging Roles

Why do they hedge?
What instruments are used?
Who is involved?
What are their objectives?

Understanding Reports Provided by Brokers

Terminology
Purchased positions vs market values
Current and cumulative gains and losses
Margin accounts

Developing Internal Hedge Status Reports

Implementation document
Management needs and interests
Percentage of exposure hedged
Presentation of swaps and options
Results and interpretations

Theoretical Issues in Fuel Hedging

Interpreting trends in prices
Regression of future prices to long-term norm
Efficiency of futures vs options
Risks in hedging