Extended-form Case Study

Hedging in commodities markets: Continental Resources

Published on December 31, 2015   22 min

A selection of talks on Finance, Accounting & Economics

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Hello, my name is Michael McDonald. This is a business case study developed for Henry Stewart Talks. Today, we're gonna be talking about Hedging in Commodities Markets: Continental Resources.
Commodities markets are focused on commodities as the name implies. Commodities are non-manufactured primary goods and they're used by businesses to produce finished goods for consumers. So, for example, a food, say a breakfast cereal, is not a commodity. Instead, commodities like wheat are used to make that breakfast cereal. Common examples of commodities include crude oil, soy beans, timber, gold, corn, live cattle, wheat, sugar, et cetera. There's about 50 different commodities traded around the world. These commodities are traded between different parties through markets just like stocks and bonds. So people are there exchanging timber, soy beans, et cetera. But the commodities themselves are not physically present when they're being traded. For example, if you had to hand a barrel of oil to someone else that had just bought it from you, that would be pretty difficult, right? And that person will have to physically move the oil and cart it off somewhere, it just wouldn't be practical. Barrels of oil are big, they weigh a lot, they're kind of bulky, if you're trying to trade hundreds of barrels of oil per day, you'd be really exhausted by the end of the day from carting all those barrels of oil around, right? So commodities are not physically present when they're traded. Instead, there's representations of those commodities. Originally, it was pieces of paper, today, it's just electronic indications that one party or another is owed those commodities. So, sellers of commodities are generally promising to deliver commodities to the buyers to a specific location in the future, a certain amount of time in the future.

Hedging in commodities markets: Continental Resources

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