Oil hedgingRietumu Trading offers hedging possibilities (profit insurance) for oil-related businesses – you can hedge both against increase and decrease in oil prices by means of a wide range of financial instruments and our access to the respective markets. Hedging principles in this case will not differ from the universally recognized practice in any way.
The most popular financial instruments used for hedging by our clients are futures for Light Sweet Crude Oil (NYMEX), Unleaded Gasoline (NYMEX) and Gas Oil (IPE/ICE). Convenient trading procedures (practically all types of market orders), unambiguous quotations, transparency of the market and Rietumu Trading’s flexible pricing policies have made these financial instruments popular among our clients.
For clients whose businesses are related to other oil products we offer additional opportunities by way of specialised financial instruments covering the majority of oil products traded in Europe.
These contracts are similar to ordinary futures contracts, while trading principles are close to the principles applied to metals forward contracts on London Metal Exchange (for example, realized profit from a closed trade can only be pulled from the account upon expiration of the contract). Among other benefits of these financial instruments are such features as NYMEX clearing NYMEX (NYMEX ClearPort®) and settlement of the majority of such instruments at Platts prices. Margin requirements are specified in contract specifications on the exchange, expiration dates usually fall on the last day of the month.
The disadvantages of these financial instruments include the large sizes of contracts – 1,000 metrical tons and, accordingly, the impossibility of splitting when closing the reverse side of a position. However, if you need to hedge deals that will be realized by degrees in smaller amounts, you can use OTC (Over-The-Counter – securities or other assets not listed on exchanges) contracts, which are almost identical to the ordinary exchange-traded contracts while being specifically created for a particular client. Such contracts can be realized by smaller parts (but still not less than 100 metrical tons), and margin requirements are the same as for exchange-traded contracts. However, due to their rather low liquidity spreads will often be wider than established spreads for exchange-traded contracts.