On May 15, an oil producer contracts to sell 1,000,000 bbls of crude 3 months forward at the then-current spot price (August 15) The producer gains/loses $10,000 for each $0.01 change in the spot price. Risk arises due to uncertainty of the future price of oil On May 15, the spot price is $60/bbl and the futures price is $59 Each Oil futures covers 1,000 bbls. The producer can hedge its risk by shorting 1,000 August oil futures On May 15, an oil producer contracts to sell 1,000,000 bbls of crude 3 months forward at the then-current spot price (August 15) The producer gains/loses $10,000 for each $0.01 change in the spot price. Risk arises due to uncertainty of the future price of oil On May 15, the spot price is $60/bbl and the futures price is $59 Each Oil futures covers 1,000 bbls. The producer can hedge its risk by shorting 1,000 August oil futures