Fuel hedging
Contractual tool to reduce cost for fuel / From Wikipedia, the free encyclopedia
Dear Wikiwand AI, let's keep it short by simply answering these key questions:
Can you list the top facts and stats about Fuel hedging?
Summarize this article for a 10 year old
Fuel hedging is a contractual tool some large fuel consuming companies, such as airlines, cruise lines and trucking companies,[which?] use to reduce their exposure to volatile and potentially rising fuel costs.[citation needed] A fuel hedge contract is a futures contract that allows a fuel-consuming company to establish a fixed or capped cost, via a commodity swap or option. The companies enter into hedging contracts to mitigate their exposure to future fuel prices that may be higher than current prices and/or to establish a known fuel cost for budgeting purposes. If such a company buys a fuel swap and the price of fuel declines, the company will effectively be forced to pay an above-market rate for fuel. If the company buys a fuel call option and the price of fuel increases, the company will receive a return on the option that offsets their actual cost of fuel. If the company buys a fuel call option, which requires an upfront premium cost, much like insurance, and the price of fuel decreases, the company will not receive a return on the option but they will benefit from buying fuel at the then-lower cost.[citation needed]