What's stopping the airlines bypassing whoever they have hedged the price with, if it drops significantly ?
A cynic's guide to the stockmarket.
They don't actually
buy anything......it's just playing Roulette, with others' money.
What they have done, in this case, is bet on the price at a future date.....if the price has risen, the other party pays them the difference....if, as seems likely,the price has dropped below the gambled price, the airline has to make a payment of the shortfall.
Real product is traded on the Rotterdam Spot- Market, where any fuel which is "left over" from meeting "proper" orders, is punted. Many small , independent distributors used to use this and that is a primary reason why smaller suppliers had such wildly varying prices compared to the big multi-nationals.Unfortunately, most independents have disappeared....this affectsthe consumer because there's no competition to the majors.
Bear in mind that at any time, there are considerable stocks in storage, refineries, at sea and already pre-bought.- so any price fluctuation takes a while to come through to the consumer. Only in the case of Duty or VAT is the effect often immediate.
In the case of a price-rise, oldstocks are oftensold at the higher price inorder to finance the next lot which may cost more than the revenue takenfrom the lot just sold...A"loss" on paper, but in practice, the value of the stockholding increases.
As my overdraft soared, I had great difficulty explaining to the bank- manager that although the price had risen by 50%, my margin was still 5% of 1 1/2 times the turnover, compared with the "old" price....He couldn't grasp the fact that price-rises would eventually slow or stop and the profits would eventually repay the loan.
The scale of Aviation fuel, makes price-fluctuation really scarey. Don't blame the bean-counters at Airline-level, for this one.