A Barrier Physical Fixed Price is a good hedging instrument for customers who find that there is too much contango in the market and want to put up a barrier against the rising markets. If you decide to buy a Physical Barrier Price, you will get a discount on the fixed price compared to a normal physical fixed price. However, if prices rise above a certain point, you will only be covered up to this level.

Rewards

• Some protection against rising markets
• Little or no contango premium compared with normal fixed prices
• No settlement

Risks

• Opportunity cost if market falls
• Not 100% protection against rising markets

Barrier Physical Fixed Price example
In December you decided to buy a barrier physical fixed price in Durban, running from January to March at 2000mt per month.
OW Bunker and you agreed on a physical fixed price at $534/mt with a barrier at $575/mt.

A normal physical fixed price would be $551/mt, so by setting the roof (upper limit), you get a $17/mt discount. If the price moves above $575, you pay from $575 and up.

In January the average bunkerwire in Durban is $520 so you pay the fixed price $534.

In February the average bunkerwire in Durban is $560 so you pay the fixed price $534.

In March the average Bunkerwire in Durban is $585 so you pay the fixed price $534 + premium $10 (585-575) = $544.





Click here to contact you nearest OW Risk Management expert