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Cross commodity hedging is a popular way of managing risk for producers and speculators alike. Also referred to as cross hedging, this financial strategy involves opening positions in related markets to mitigate systemic exposure.
Simply so, what is cross hedging?
A cross hedge is used to manage risk by investing in two positively correlated securities that have similar price movements. Although the two securities are not identical, they have enough correlation to create a hedged position, providing prices move in the same direction.
Beside this, is oil and gas a commodity?
Crude oil and natural gas are both energy commodities. As such, we use these fuels to heat and cool our homes or supply other energy needs. The price relationship between crude oil and natural gas is an inter-commodity spread, in which the prices between the two change in relation to each other.
To protect themselves from volatile oil costs, and sometimes to even take advantage of the situation, airlines commonly practice fuel hedging. They do this by buying or selling the expected future price of oil through a range of investment products, protecting the airline companies against rising prices.