On July 24, 2012, a crude oil purchasing director wants to hedge his crude oil purchase planned for January 2015. He buys a January 2015 futures contract on the NYMEX at $88.41 per barrel (contract size is for 1,000 barrels). On the same day, the crude oil spot price is $88.81 per barrel (Bbl). The director closes out this futures contract on January 2, 2015 at $95.50 per barrel. The spot price of crude oil on January 2 is $96.10 per barrel.

The director has made a ______ (list the profit or loss amount) on the futures contract PER BARREL. This is a long hedge or short hedge? What is the director's net cost of crude oil including the gain or loss on the futures and the purchase of crude oil in the spot market on January 2nd, PER BARREL?

Note: draw a time line of the transaction prices, and Cash Flows.

Group of answer choices

Loss of $7.09 PER BARREL

long hedge

$89.01 overall cost of crude oil on January 2 including hedge gain or loss.

Profit of $7.50 PER BARREL

long hedge

$96.10 overall cost of crude oil on January 2 including hedge gain or loss.

Profit of $0.61 PER BARREL

long hedge

$89.01 overall cost of crude oil on January 2 including hedge gain or loss.

Profit of $7.09 PER BARREL

long hedge

$89.01 overall cost of crude oil on January 2 including hedge gain or loss.