Fuel Price Risk Management

Fuel price risk management involves strategies and financial instruments used by companies, especially those in the transportation and airline industries, to hedge against volatile fuel costs. Common methods include futures contracts, options, and swaps that lock in fuel prices, providing cost stability and reducing exposure to price fluctuations. Effective fuel price risk management helps companies control expenses, maintain profitability, and protect against adverse movements in fuel prices.

Example

An airline enters into futures contracts to purchase jet fuel at a fixed price, protecting against potential price increases and stabilizing operating costs over the contract period.