BUNKER HEDGING: THE PAST AND THE FUTURE, Should Banks Risk It?

by Peter Crumbine, Vice President- Oil Derivatives, Sempra Energy Trading

The Past
In March, 1999, when OPEC decided to curb production, Rotterdam 380 cst could have been fixed at $69.50/mt for the entire year 2000. Historically, Rotterdam 380 cst has averaged $88/mt with monthly averages ranging between $54-143/mt. So even without an OPEC agreement, the downside was small and the upside was huge.

Here are some quotes from my 1999 weekly reports:

January 7: “Prices are extremely low in an absolute sense, and eventually prices will be much higher.” February 8: “Prices will rebound…they always do.” February 12: “It is hard to see prices going much lower.” March 15: “If (OPEC’s) 2 MMBD cutback holds and if Asia begins to bounce back, we will most certainly see a continuation of the current uptrend.” (Note: In spite of this so-called “uptrend,” the price for Rotterdam 380 cst in 2000 had only increased from $69.50 to $71.00/mt.) April 19: “This market will not go away. Prices have been a lot higher in the past and the trend is clearly up.” May 5: “We have a serious bull market.

This is only an excerpt of BUNKER HEDGING: THE PAST AND THE FUTURE, Should Banks Risk It?

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