1. Shell Oil Refinery expects to pay for 100,000 barrel of crude oil at close of day on Friday, January 3 They want to hedge their position with crude oil futures. Assume that they enter into the position at close of day on Tuesday, January 28. The size of one crude oil futures is 1,000 barrel. Futures and spot data is provided in the file HW2_data.doc.

1. Describe the position they should enter (long or short, contract month).

2. Compute the hedge ratio using data from HW2_data.xls file.

3. How many contracts do they need to buy or sell?

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

5. What is the total cost after they have closed out their futures position, and made their payment?

6. What is the effective cost per barrel?

Date	Futures Price	Spot Price
1	$53.14	$53.09
2	$54.19	$54.09
3	$55.59	$55.51
4	$56.74	$56.76
5	$58.34	$58.25
6	$58.54	$58.55
7	$58.52	$58.52
8	$57.81	$57.86
9	$58.23	$58.34
10	$58.08	$58.17
11	$59.04	$59.02
12	$59.56	$59.56
13	$59.61	$59.65
14	$62.70	$62.70
15	$63.27	$63.27
16	$63.05	$63.00
17	$61.18	$61.17
18	$61.06	$61.14
19	$61.68	$61.66
20	$61.72	$61.76

Crude Oil Data

Daily Settlements for Crude Oil Futures (FINAL)Trade Date: Wednesday, 01/29/2020

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
MAR 20	53.97	54.37	52.81	53.08	-.15	53.33	638,404	478,095
APR 20	54.00	54.39	52.87	53.16	-.11	53.41	114,006	158,130
MAY 20	54.00	54.32	52.86	53.17A	-.06	53.42	85,335	138,002
JUN 20	53.86	54.16	52.75	53.07	-.02	53.31	90,582	226,032
JLY 20	53.27	53.86	52.56	52.85	+.02	53.10	44,378	100,993
AUG 20	53.00	53.50	52.35	52.61	+.03	52.81	20,108	68,666

Daily Settlements for Crude Oil Futures (FINAL)Trade Date: Friday, 01/31/2020

Month	Open	High	Low	Last	Change	Settle	Estimated Volume	Prior Day Open Interest
MAR 20	52.92	53.36	50.97	51.63	-.58	51.56	853,977	469,599
APR 20	52.97	53.42	51.09	51.75	-.55	51.68	159,913	159,547
MAY 20	52.98	53.43	51.18	51.80	-.50	51.77	120,952	163,147
JUN 20	52.99	53.36	51.22	51.86B	-.43	51.80	141,895	223,060
JLY 20	52.78	53.19	51.23A	51.72	-.36	51.74	69,715	111,390
AUG 20	52.49	52.92	51.10	51.61	-.30	51.59	43,901	72,531

Spot data:

2020/01/28 53.33

2020/01/29 53.29

2020/01/30 52.19

2020/01/31 51.59