Hedging Against Bunker Price Fluctuations Using Petroleum Futures Contracts; Constant vs Time Varying Hedge Ratios

Posted: 18 Feb 2014

See all articles by David A Menachof

David A Menachof

Hull University Business School (HUBS); City University London - Sir John Cass Business School

Amir H. Alizadeh

City University London - Sir John Cass Business School

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: 2004

Abstract

The effectiveness of hedging marine bunker price fluctuaions in Rotterdam, Singapore and Houston is examined using different crude oil and petroleum future contracts traded at the New York Mercantile Exchange (NYMEX) and the International Petroleum Exchange (IPE) in London. Using both constant and dynamic hedge ratios, it is found that in and out-of-sample hedging effectiveness is different across regional bunker markets. The most effective futures instruments for out of sample hedging of spot bunker prices in Rotterdam and Singapore are the IPE crude oil futures, while for Houston it is the gas oil futures. Differences in hedging effectiveness across regional markets are attributed to the varying regional supply and demand factors in each market. In comparison to other markets, the cross-market hedging effectiveness investigated in the bunker market is low.

Suggested Citation

Menachof, David A and Alizadeh, Amir H. and Kavussanos, Manolis G., Hedging Against Bunker Price Fluctuations Using Petroleum Futures Contracts; Constant vs Time Varying Hedge Ratios (2004). Applied Economics, Vol. 36, No. 12, 2004 pp. 1337-1353. Available at SSRN: https://ssrn.com/abstract=1435318

David A Menachof

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

HOME PAGE: http://www.hull.ac.uk

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Amir H. Alizadeh

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Manolis G. Kavussanos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission St
TK 104 34 Athens
Greece
0030 210 8203167 (Phone)
0030 210 8228816 (Fax)

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