Course 12 of 20 · Crude Oil Desk Academy

Physical Crude Hedging

Stage D, Risk and money. Level 7 of 10.

Hedge instrument selection, ratio and sizing, pricing-period alignment, residual basis and hedge accounting basics.

126 chapters · 11 modules · every chapter one 8 to 10 minute explainer · builds on: Course 04, Course 10, Course 11

Enrol or enquire See the 126 chapters
How a chapter is sized

One chapter is one idea taken to the point of use

Each chapter is a single self-contained explainer of 8 to 10 narrated minutes, covering one idea to the point where you can use it.

Chapters run in order. Each one assumes only what the chapters before it taught, and capability belonging to a later course is named and deferred rather than half-covered.

Curriculum

11 modules · 126 chapters

Open any module for its full chapter list, in teaching order.

M0 The Exposure a Physical Trade Creates Ch 1-11
  1. What Hedging Is and What It Is Not
  2. The Exposure Hiding Inside a Physical Purchase
  3. The Exposure Hiding Inside a Physical Sale
  4. Priced and Unpriced Barrels
  5. The Moment Exposure Begins
  6. Flat Price, Differential and Timing as Three Separate Exposures
  7. Why a Matched Pair of Physical Trades Is Not Flat
  8. The Hedgeable and the Unhedgeable
  9. What a Hedge Is Supposed to Achieve
  10. The Cost of Carrying an Unhedged Cargo
  11. Map of the Hedging Decision
M1 The Linear Instrument Set Ch 12-23
  1. Futures as a Hedging Instrument
  2. Swaps as a Hedging Instrument
  3. Choosing Between a Future and a Swap
  4. Contracts for Differences on the Dated Window
  5. The Exchange of Futures for Physical
  6. The Exchange of Futures for Swaps
  7. A Physical Offset as a Hedge
  8. Back-to-Back Pricing as the Cheapest Hedge
  9. Index Swaps Against a Published Average
  10. Which Instrument Matches Which Exposure
  11. Liquidity as an Instrument Selection Criterion
  12. Transaction Cost Across the Instrument Set
M2 Sizing the Hedge and the Ratio Ch 24-35
  1. The Barrel Count You Actually Hedge
  2. Contract Size, Lot Rounding and the Residual
  3. Tolerance Barrels and the Optional Quantity
  4. Hedging Operational Loss and Shrinkage
  5. The Hedge Ratio as a Question, Not a Default
  6. One-for-One as the Starting Point
  7. When One-for-One Is Wrong
  8. Regression-Based Ratios and Their Fragility
  9. Hedging a Grade with No Direct Instrument
  10. Proxy Hedge Ratio Arithmetic, Worked
  11. Hedging Across a Quality Gap
  12. Sizing Under Uncertain Final Quantity
M3 Aligning the Hedge with the Pricing Period Ch 36-48
  1. The Pricing Period Seen by a Hedger
  2. The Hedge Window Must Mirror the Physical Window
  3. Building the Hedge Schedule from the Physical Schedule
  4. Pricing Days, Publication Days and Non-Quotation Days
  5. The Average Price Problem
  6. Hedging an Average with a Single Dated Contract
  7. Strip Hedging an Average, Worked
  8. What a Three-Day Shift Costs
  9. Bill-of-Lading-Based Pricing and the Moving Window
  10. Optional Pricing and the Hedger's Problem
  11. Deferred and Retroactive Pricing Elections
  12. Mismatch Cost, Measured
  13. Aligning Purchase and Sale Windows Through the Hedge
M4 Placing and Executing the Hedge Ch 49-59
  1. From Hedge Decision to Working Order
  2. Execution Timing Inside the Pricing Window
  3. Hedging at the Settlement or Hedging Intraday
  4. Trade-at-Settlement and Average-Price Execution
  5. Building the Hedge in Clips
  6. Slippage and the Price You Actually Got
  7. Bilateral Swap Execution and the Dealer Quote
  8. Clearing a Swap or Leaving It Bilateral
  9. Confirmations, Give-Ups and the Hedge Record
  10. Tagging a Hedge to Its Physical Trade
  11. The Hedge Blotter and Daily Reconciliation
M5 Rolling, Adjusting and Unwinding Ch 60-71
  1. Why a Hedge Has to Be Rolled
  2. The Mechanics of a Roll
  3. What a Roll Costs
  4. Rolling a Strip Against Rolling a Single Month
  5. Roll Timing and the Crowded Roll
  6. Adjusting a Hedge When the Cargo Changes
  7. Adjusting for a Laycan Slip
  8. Unwinding the Hedge as the Physical Prices
  9. Unwinding a Hedge Early
  10. The Orphan Hedge
  11. Over-Hedging and the Double-Covered Book
  12. A Full Hedge Life Cycle, Worked
M6 The Cash and Margin Consequences of Being Right Ch 72-82
  1. Why a Correct Hedge Loses Money
  2. The Timing Asymmetry Between Hedge and Physical
  3. Daily Variation Margin on a Futures Hedge
  4. Initial Margin as a Standing Cost of Cover
  5. Collateral Calls on a Bilateral Swap
  6. The Cash Demand a Rising Market Makes on a Short Hedge
  7. The Cash Demand a Falling Market Makes on a Long Hedge
  8. Sizing the Cash a Hedge Can Demand
  9. When a Hedge Is Liquidated for the Wrong Reason
  10. Hedge Limits Expressed in Cash Rather Than Barrels
  11. Explaining a Hedge Loss to the People Who Fund It
M7 What the Hedge Left Behind Ch 83-94
  1. No Hedge Is Complete
  2. What Survives a Perfect Flat-Price Hedge
  3. Measuring Hedge Effectiveness in Cash
  4. Attributing the Gap Between the Two Legs
  5. Residual Basis as a Position You Chose to Keep
  6. Residual Timing Risk
  7. Residual Quantity Risk
  8. Residual Quality Risk
  9. Residual Currency and Unit Exposure
  10. Deciding Which Residual to Keep
  11. The Hedge Mandate and Its Tolerances
  12. Reporting the Residual Honestly
M8 Hedging Against Taking a View Ch 95-105
  1. The Line Between Hedging and Speculating
  2. Economic Hedge, Policy Hedge and Outright Position
  3. The Hedge That Became a Trade
  4. Partial Hedging as a Deliberate View
  5. Selective Hedging and the Record It Leaves
  6. Over-Hedging as Concealed Position Taking
  7. The Discretionary Hedger's Governance Problem
  8. Hedge Mandates, Delegations and Limits
  9. The Hedge Committee and What It Decides
  10. Documenting the Hedge Rationale at Inception
  11. Auditing Hedge Behaviour After the Fact
M9 Hedge Accounting Basics Ch 106-117
  1. Why the Accounting Result Differs from the Economic One
  2. Fair Value and the Problem It Creates
  3. Accrual Physical Against Marked Paper
  4. What Hedge Accounting Is Trying to Do
  5. The Designation Decision
  6. Documentation Required at Inception
  7. Cash Flow Hedge Mechanics
  8. Fair Value Hedge Mechanics
  9. Effectiveness Assessment in Accounting Terms
  10. Measuring and Reporting Ineffectiveness
  11. Own-Use and Normal Purchase Treatment
  12. When Hedge Accounting Is Not Worth It
M10 Putting the Whole Hedge Decision to Work Ch 118-126
  1. A Term Purchase Hedged to Sale, Part One: Exposure and Instrument
  2. A Term Purchase Hedged to Sale, Part Two: Sizing and Alignment
  3. A Term Purchase Hedged to Sale, Part Three: Roll, Cash and Unwind
  4. A Term Purchase Hedged to Sale, Part Four: Residual and Verdict
  5. Hedging a Cargo with No Good Instrument
  6. Reviewing a Hedge Decision by Its Inputs
  7. Writing a Hedging Policy You Can Actually Follow
  8. What Linear Hedging Cannot Do
  9. Where the Hedge Decision Goes Next

The brochure gives each of these 126 chapters a paragraph on what it covers and what you can do once you have worked through it.

This is course 12 of twenty

It stands alone, and it is also the entry point to the Crude Oil Desk Academy pathway.

Enrol or enquire See the whole pathway