Didn’t this hedge actually work?
If you buy oil long, and it crashes, you are covered because your fuel costs are that much lower.
If your long oil wins, it mitigates the higher fuel costs incurred.
Isn’t that the definition of a hedge?
he is long Oil at $60 and it goes all the way down to $30 then he will lose money
It depends on how they actually hedged and how they elected to account for it, but if they’re accelerating the losses and taking it all right now, then it wasn’t really a “hedge” in the first place. It sounds more like a speculative bet with financial swaps that they were going to offset against their spot fuel purchases. They’ll take all of the unrealized “losses” right now while the fuel price is so cheap so that in the future when all of the swap payments start rolling in they can count that extra money as “income”. So really, this sounds like a big accounting gimmick.
Boiling Pots...
Is anyone reading your post? Seems like a commodity trader out there should be responding. I agree.
That being said, I have seen farmers put on hedges that were exactly backwards from the stated intent. Bingo...BK followed soon thereafter.
pointsal