RE:RE:RE:RE:RE:NG NEWSTerribleEng wrote: Hedging waters down the stabilizing price signals that the market gives.
Let's take the case where the industry as a whole is highly hedged. When prices fall because the market is well supplied, funds from cashflow allow producers to maintain or increase production as if the move never happened. When prices rise because the market is in need of new production, no one has money to increase production because their hedges prevent their cashflow from increasing to fund Capex. In a scenario, where the industry is over hedged you end up with wilder price swings which creates a positive feedback loop that causes more hedging.
Or hedging provides stability and certainty of cash flow for varying commodities producers.
Any co's with large capex commitments or other material future expenditures can benefit from hedging programmes.