As a financial analyst at Deutsche Bank, you are analyzing how futures will be used to reduce the risk. It is March 31, 2021 now. A company knows that it will need to purchase 30,000 barrels of crude oil sometime in July. You have collected the following information about the futures contracts. The current May oil futures price is $25.00 per barrel and the current August oil futures price is $27.

On June 11, the spot oil price is $29 per barrel and the company decides to take oil position (one oil futures contract =1,000 barrels) and August futures price is $28.

a. What futures contract should be used for hedge purpose? July (sample answer: May Futures; or August Futures)

b. What will be the net cost of oil per barrel if you take a long position in the oil futures contracts on April 15, 2020?