A specialization of both financial risk management

Financial risk management

Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc...

 and oil price analysis – and similar to conventional risk management

Risk management

Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...

 practice – fuel price risk management is a continual cyclic process that includes risk assessment, risk decision making, and the implementation of risk controls. Fuel price risk management focuses primarily on when and how an organization can best hedge

Hedge

Hedge may refer to:* Hedge or hedgerow, line of closely spaced shrubs planted to act as a barrier* Hedge , investment made to limit loss* Hedge , intentionally non-committal or ambiguous sentence fragments-See also:...

 against costly exposures to fuel price risk. Fuel price risk management is generally referred to as bunker hedging in a shipping context and fuel hedging in an aviation context.

Providers of fuel price risk management services

Fuel price risk management services are predominantly provided by specialist teams within large oil companies and financial services institutions. Examples include:

1. Oil companies - Total S.A.
   Total S.A.
   Total S.A. is a French multinational oil company and one of the six "Supermajor" oil companies in the world.Its businesses cover the entire oil and gas chain, from crude oil and natural gas exploration and production to power generation, transportation, refining, petroleum product marketing, and...
   
   , Royal Dutch Shell
   Royal Dutch Shell
   Royal Dutch Shell plc , commonly known as Shell, is a global oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the fifth-largest company in the world according to a composite measure by Forbes magazine and one of the six...
   
   , ExxonMobil
   ExxonMobil
   Exxon Mobil Corporation or ExxonMobil, is an American multinational oil and gas corporation. It is a direct descendant of John D. Rockefeller's Standard Oil company, and was formed on November 30, 1999, by the merger of Exxon and Mobil. Its headquarters are in Irving, Texas...
   
   , Koch Industries
   Koch Industries
   Koch Industries, Inc. , is an American private energy conglomerate based in Wichita, Kansas, with subsidiaries involved in manufacturing, trading and investments. Koch also owns Invista, Georgia-Pacific, Flint Hills Resources, Koch Pipeline, Koch Fertilizer, Koch Minerals and Matador Cattle Company...
   
   , BP
   BP
   BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
   
   , Royal Dutch Shell
   Royal Dutch Shell
   Royal Dutch Shell plc , commonly known as Shell, is a global oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the fifth-largest company in the world according to a composite measure by Forbes magazine and one of the six...
   
   
2. Financial institutions - Goldman Sachs
   Goldman Sachs
   The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
   
   , Nomura plc, Barclays plc
   Barclays plc
   Barclays PLC is a global banking and financial services company headquartered in London, United Kingdom. As of 2010 it was the world's 10th-largest banking and financial services group and 21st-largest company according to a composite measure by Forbes magazine...
   
   , Macquarie Bank, Citigroup
   Citigroup
   Citigroup Inc. or Citi is an American multinational financial services corporation headquartered in Manhattan, New York City, New York, United States. Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate...
   
   , Morgan Stanley
   Morgan Stanley
   Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
   
   , Wells Fargo
   Wells Fargo
   Wells Fargo & Company is an American multinational diversified financial services company with operations around the world. Wells Fargo is the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home...
   
   
3. Fuel Management companies - Mercatus Energy Advisors, ProtecoEnergy, New Wave Energy, HCEnergy, World Fuel Services
   World Fuel Services
   World Fuel Services is a Fortune 500 company that is based in Miami, Florida. It provides marketing and financing of aviation, marine and ground transportation fuel products and related services to commercial and corporate aircraft, petroleum distributors and ships at more than 2,500 locations...
   
   

The fuel price risk management process

Similar to conventional risk management practice, fuel price risk management is considered a continual cyclic process that includes the following:

1. Establishing the context
   • current and future business environment
   • financial position and budgets
   • objectives and needs
   • required fuel consumption, etc.

1. Risk assessment
   • fuel cost calculations
   • risk identification
   • the organization's attitude to risk
   • exposure analysis to fuel price fluctuations
   • scenarios of various hedging strategies

1. Risk treatment
   • implementation of a fuel price risk strategy

1. Monitor and review

See also

• Commodity markets
  Commodity markets
  Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts....
  
  
• Commodity risk
  Commodity risk
  Commodity risk refers to the uncertainties of future market values and of the size of the future income, caused by the fluctuation in the prices of commodities. These commodities may be grains, metals, gas, electricity etc...
  
  
• Energy derivative
  Energy derivative
  Major players in energy derivatives include major trading houses, oil companies, utilities, financial institutions.-Definition:An energy derivative is a derivative contract based on an underlying energy asset, such as natural gas, crude oil, or electricity...
  
  
• Liquidity risk
  Liquidity risk
  In finance, liquidity risk is the risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss .-Types of Liquidity Risk:...
  
  
• Market risk
  Market risk
  Market risk is the risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices...
  
  
• Risk modeling
  Risk modeling
  For risk modeling in general see risk modelingFinancial risk modeling refers to the use of formal econometric techniques to determine the aggregate risk in a financial portfolio...
  
  
• Southwest Airlines' fuel price risk strategy