Originally Posted by
MilesDavis
I never have really understood the whole hedging thing. Aren't they basically betting that the price will go up? Who would take that bet?
Basically... you're buying fuel now for use later so that when later comes around, you know how much its going to be and you can plan accordingly. Sure, you can look at it as a bet that the price will go up but companies never hedge 100% of their requirements.
If they hedge 50% and fuel goes up $10 barrel, then its the same as if they hedge nothing and fuel only went up $5. But if fuel goes down $10, then their fuel bill only goes down $5.
It's a risk management strategy.