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2. Shell Oil Refinery expects to pay for 100,000 barrel of crude oil at close of day on Friday, September 20. They want to hedge their position with crude oil futures. Assume that they enter into the position at close of day on Tuesday, September 17th. The size of one crude oil futures is 1,000 barrel. Futures and spot data is provided in the file HW2_data.doc.

a) Compute the hedge ratio using data from HW2_data.xls file.

b)Document the price gain or loss every day that their position is open.

c) What is the total cost after they have closed out their futures position and what is the effective cost per barrel?

Spot data:

2019/09/17 59.26

2019/09/18 58.19

2019/09/19 58.19

2019/09/20 57.92

+ Daily Settlements for Crude Oil Futures (FINAL)Trade Date: Wednesday, 09/18/2019 Month Open High Low Estimated Prior Day Last Change Settle Volume Open Interest | OCT 19 58.65 59.10 57.79 58.09 .04 58.09 37,979 20,475 NOV 19 58.69 59.24 57.93 58.39 -10 58.09 587,163 412,945 | DEC 19 58.37 | 58.95 57.68 58.14 |-.07 57.84 129,187 1 277.982 | JAN 20 57.90 58.47 57.24A 57.69 -04 57.39 58,937 155,450 FEB 2057.42 57.90B 56.74 57.24 .01 56.90 36,663 77,289 MAR 20 56.76 57.36 56.24 56.71 +.01 56.38 28,129 128,937 Daily Settlements for Crude Oil Futures (FINAL)Trade Date: Friday, 09/20/2019 Month Open High Low Last Change Settle Estimated Prior Day Volume Open Interest | OCT 19 58.81 59.43 57.67 58.25 -1.23 | 58.11 | 229,292 | 80.041 NOV 1958.6259.27 57.5858.19 -1.06 58.04 664,458 378,521 DEC 19 58.06 58.75 57.14 57.79 -95 57.62 183,720 278,467 JAN 20 57.45 58.09 56.60 57.22 -.84 57.08 51,009 149,525 FEB 2056.75 57.49 56.11 56.65 -72 56.56 35,771 80,047 MAR 20 56.15 56.85 55.60 56.07 -57 56.05 41,346 128,716 Date 2 3 $97,29 $5,56 5 7 10 11 12 13 14 15 16 Futures Spot Price Price $54.80 $54.76 $55.05 55.13 $55,67 $55.66 $57,29 $57,37 $57,73 $56,43 $56,45 $56,16 $56,33 $56,10 5 6,22 $53,76 $53,91 $54,89 $55,07 $56,45 $56,67 $55,60 $55,76 $54,77 $54.99 $53,50 $53,54 $54,02 $54,08 $55,16 $55,33 $55,49 $55,80 $56,18 $55,711 $56,24 $54,42 $54,83 $54,09 $54,51 555.65 19 21 + Daily Settlements for Crude Oil Futures (FINAL)Trade Date: Wednesday, 09/18/2019 Month Open High Low Estimated Prior Day Last Change Settle Volume Open Interest | OCT 19 58.65 59.10 57.79 58.09 .04 58.09 37,979 20,475 NOV 19 58.69 59.24 57.93 58.39 -10 58.09 587,163 412,945 | DEC 19 58.37 | 58.95 57.68 58.14 |-.07 57.84 129,187 1 277.982 | JAN 20 57.90 58.47 57.24A 57.69 -04 57.39 58,937 155,450 FEB 2057.42 57.90B 56.74 57.24 .01 56.90 36,663 77,289 MAR 20 56.76 57.36 56.24 56.71 +.01 56.38 28,129 128,937 Daily Settlements for Crude Oil Futures (FINAL)Trade Date: Friday, 09/20/2019 Month Open High Low Last Change Settle Estimated Prior Day Volume Open Interest | OCT 19 58.81 59.43 57.67 58.25 -1.23 | 58.11 | 229,292 | 80.041 NOV 1958.6259.27 57.5858.19 -1.06 58.04 664,458 378,521 DEC 19 58.06 58.75 57.14 57.79 -95 57.62 183,720 278,467 JAN 20 57.45 58.09 56.60 57.22 -.84 57.08 51,009 149,525 FEB 2056.75 57.49 56.11 56.65 -72 56.56 35,771 80,047 MAR 20 56.15 56.85 55.60 56.07 -57 56.05 41,346 128,716 Date 2 3 $97,29 $5,56 5 7 10 11 12 13 14 15 16 Futures Spot Price Price $54.80 $54.76 $55.05 55.13 $55,67 $55.66 $57,29 $57,37 $57,73 $56,43 $56,45 $56,16 $56,33 $56,10 5 6,22 $53,76 $53,91 $54,89 $55,07 $56,45 $56,67 $55,60 $55,76 $54,77 $54.99 $53,50 $53,54 $54,02 $54,08 $55,16 $55,33 $55,49 $55,80 $56,18 $55,711 $56,24 $54,42 $54,83 $54,09 $54,51 555.65 19 21

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