National Fuel allows its customers to prepurchase heating oil in May for the coming winter.If Swenson does not hedge its positions in the futures market

Question

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If Swenson does not hedge its positions in the futures market, it is exposed to the volatility of fuel prices. This means it could indeed make unexpected profits if fuel prices decline, as it would be buying fuel at a lower price than anticipated. Conversely, it could suffer large losses if the winter wholesale cost of fuel rises above the May retail price, as it would have to purchase fuel at a higher price than it sold it to customers. Lastly, if winter prices do not change significantly from the May spot price, Swenson would make normal profits, as its costs and revenues would be in line with expectations.

National Fuel Allows Its Customers to Prepurchase Heating Oil in May