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This is a money-making venture, used by investors, funds, oil companies and governments to hedge their bets and cover any possible losses they might incur elsewhere in the supply chain. Forward traders, however, are actually hedging future production or demand and hope to take possession of real oil (or sell real oil) – or soybeans, o zone or cocoa, or electricity, or whatever – at a later date. Speculators are important o zone to a market because they bring liquidity and o zone information as they place their bets on whether a commodity will increase or decrease in value. Hedging is even an issue with long-term contracts. It takes about eight weeks for a great big boat (a technical term) full of Arabian crude to reach the Louisiana Offshore Oil Port (LOOP) from the Arabian Peninsula. Eight weeks, in the market we have today, is an eternity. Buyers want to make sure that oil they may have paid $38 per barrel for at Yanbu is not suddenly worth only $35 per barrel when it reaches LOOP.
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