ABSTRACT
This chapter outlines the use of “modern” methods of risk management with the use of bunker derivatives for hedging the fluctuations in bunker prices. It presents an overview of the bunker market. The chapter considers key economic variables affecting bunker prices. It examines the Over-The-Counter (OTC) forward bunker agreements as a tool for hedging bunker price risk. The chapter focuses on the market of bunker fuel oil futures, including early efforts, the practice of cross-hedging and the current bunker futures market. It discusses bunker swaps and bunker options as important tools to hedge bunker price risk, respectively. Bunker fuel is the residue of the distillation process of crude oil, i.e. after all the higher components have been evaporated or boiled off. The demand for bunkers comes from shipowners and vessel operators, including charterers, who have a vessel on a time-charter agreement.
