il producer is concerned (afraid of) with lower and lower oil prices during 2.A)

Question

il producer is concerned (afraid of) with lower and lower oil prices during 2.A) (10 points) An the next six months. At this time, current spot price is $65 futures p calculate the net revenue from the sale of oil for the producer based on your strategy above given the data below. per barrel and six months ahead rice is S68. Suggest a hedging strategy given the data below as your forecast and Time Cash or Spot Price Futures Now Later $ 65 45 $ 68 49 Show your answer below: Time Cash or Spot Price Futures Price Net gain or loss to the ol producer as a hedger Now Later Results 2 B (10 points) calculate the net price received by oil producer as a result of your (combined) strategy

Explanation / Answer

Oil producer is afraid of oil price falling , he will sell oil futures @ 68 for 6 months.

Spot = $65

After 6 months

Futures = $49

Profit = change in futures price= 68-49= 19

Later

Price received by oil producer will be $ 63, it is shown here under:

Producer will sell oil @ 45 and profit from futures= $18

Total price received= 45+18=$ 63

Time cash or spot futures price Net gain or loss Now 65 68

Later

45 49 Results fall in price Profit 18

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