Indicative FSP

Risk management in automotive fuel prices

The objective of this project was to quantify and hedge against the risks that specific subsidiary fuel retailers and wholesalers of Hellenic Petroleum Group face regarding two of its products, namely the unleaded gasoline and the automotive diesel. First, factors that have a deep impact on the volatility of the oil prices worldwide, as well as in the specific markets, are described. Then magnitude of the potential losses that the company will incur under different confidence levels and different horizons are projected. Various methods of the value-at-risk technique were utilized and backtested to estimate the price risk that the parent company faces when supplying its subsidiaries. The information gained from the aforementioned analysis necessitates that hedging instruments (i.e. futures) from the most important commodity exchanges in the world be used. The effectiveness of the various futures considered was tested using the minimum variance criterion. The implications of the results are crucial for the company’s strategy because they help to minimize the exposure in the fluctuation of unleaded gasoline and automotive diesel prices. Finally, the theoretical impact of this hedging strategy on the whole company is discussed.

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