Morning H,
If the price of oil rises to $100 our hypothetical $60 forward position would then be at a notional loss because we would have to sell for $60 and forgo the $100.
Surely hedging is just a bet taken out on future oil prices. Companies taking out a hedge at current oil prices of $35 would do so to smooth future cash flow. They protect themselves against the downside and forgo the upside and presumably pay a premium to the hedge provider to boot.
I'm not sure you can take out a "hedge" at above market prices anyway, sounds more like a "put" option that you would have to pay a huge premium for. You cannot create an asset out of thin air
pj
Rig Move, page-26
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