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Log and Hedging

In: Business and Management

Submitted By mansoor159
Words 1113
Pages 5
The data sources for historical spot and futures prices on crude oil and refined products are available at http://www.eia.gov/petroleum/data.cfm (click on “Prices”), and current oil futures price data are available at http://www.cmegroup.com/trading/energy/. While much of the basic ideas surrounding these projects come from Chapter 10 of the textbook, class discussions will involve deeper coverage than that posed in the textbook. I will be looking for evidence in your reports that you have been paying attention in class. Failure to provide such evidence will result in lower or possibly failing grades on the written report.

Description of assignment:

Underlying information for assignment:
The basic scenario: You work for a major US airline, VUL Air, in its fuel purchasing department. During December 2015, your boss, the VP of fuel purchasing for VUL, purchased 2,700 March 2016 light sweet crude oil contracts traded on the CME’s NYMEX exchange to partially hedge the company’s anticipated February 2016 jet fuel consumption of 116 million gallons. The weighted average price of crude oil futures contracts purchased on the NYMEX during December 14 – 18, 2015, was $38.18 per barrel. Your boss has presented you with the plan for liquidating the 2,700 crude oil futures contracts during February 2016. In fact, you have been provided with a spreadsheet template (see “General Files” in the course D2L page) that shows the plan for liquidating the futures contracts (see column K of the spreadsheet template).

More background information: • One barrel of oil = 42 gallons of oil.

• VUL Air uses jet fuel on a daily basis, and there are only minor deviations in the scheduled routes from day-to-day. Thus, you can assume that the airline uses the same amount of fuel during each of the 29 days of February 2016.

• VUL Air employs “first-in,

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