Spot $80
1 barrel at spot $80, 1 barrel at hedge $80. Loss on hedge - $0. Total fuel cost $160
Spot $50
1 barrel at spot $50, 1 barrel at hedge $80. (loss on hedge $30). Total fuel cost $130
In the second case they would say they bought two barrels at $50 and lost $30 on the hedge for a total cost of $130.
You are correct but you have missed out the price of the hedging contract itself.
Wouldn't no hedging be better?
Spot $80
2 barrels at spot. Total cost $160 plus $0 due to no hedging cost.
Spot $50
2 barrels at spot. Total cost $100 + $0 for contract, versus $130 + price of the contract.
Why pay for hedging at all if the Russians and Chinese are going to do all the hedging and keep the price at below $60?
The company got greedy and gambled with our livelihoods because some banker told them that the price of oil was headed to $200. They went out to 4 years because they thought they would be raking it in.
I wonder what the fees were for the banker's advice? I wonder how much he got in bonuses that year that the hedging contracts were made?