Balaji Viswanathan

Hedging the Price of Oil

Buying such long term futures makes sense for a lot of companies even more than near term futures. Southwest used such long term futures to make good profits for a long time (till the previous quarter). If you are a big airline, you know you need oil for a many years to come and if you are big oil producer you know you will produce for a long time to come. Both these companies would want to reduce the risk for their shareholders and there lies a need for the market. The main purpose of futures markets is not to serve the traders but to help the connect the consumers and producers and for many of these parties only long term futures makes sense.


On Nov 05 09:28 AM Fred Banks wrote:

> Interesting. I just finished explaining to a gentleman that there
> is no liquidity in the oil futures market for contracts with a maturity
> of more than 6 months, and often less, and now I read in the above
> that it is possible to buy futures for 5 years.
>
> Somebody said that there is a fool born every minute, but I think
> that every second is more appropriate. Don't they teach people anything
> at all in those store-front universities on Wall Street or Rodeo
> Drive.