Topic title says it all. Oil has dropped significantly. Any word on whether hedging has increased?
Oil $88 / barrel - Has US started to hedge more now that prices have dropped?
- Thread starter USFlyer
- Start date
Dunno, but they'd look pretty stupid if they spend a lot hedging at current prices and then oil falls to $50/bbl or less, which it very might well do now that the global economy appears to be in a slowdown.
autofixer
Veteran
LCC is something like 47% hedged at $108 in the 4th quarter.
http://seekingalpha.com/article/86318-us-a...anscript?page=3
http://seekingalpha.com/article/86318-us-a...anscript?page=3
N965VJ
Veteran
- Thread Starter
- #5
Oil could also go back up to $140/bbl again. A prudent hedging strategy locks in some of your needs when the opportunity seems right. It's by no means an exact science.
Bobbie
Senior
It's about fixing long-term costs for an item that's inherently variable. The price paid, even if higher than a prevailing market price in the future, represents a great value to an airline because it affords them the luxury of planning ahead, budgeting appropriately to weather spikes (and drops) in prices.
The shareholders are the ones who benefit the most from these strategies, at any price. Not hedging is a huge gamble.
The shareholders are the ones who benefit the most from these strategies, at any price. Not hedging is a huge gamble.
I don't think the current oil price is the key factor when hedging. If you enter into a hedging agreement today for 2010 for example, you lock in the price that experts think oil will be trading at in 2010. So, if they think oil will be trading at $100 a barrell in 2010 and you think it will be $140, then you go ahead and make the decision to hedge at $100. When 2010 comes around and oil is at $200, then you made out great. If it's $50, then you are in trouble.
