Ever heard of things like "hedging", "derisking", "certainty", why do you think companies enter into things like forward currency contracts and forward contracts for the purchase of things like oil, because they don't like to gamble on the rise and fall of markets, oil is a commodity big guy whose price can be very volatile, companies with decent corporate governance don't like volatility, they can't factor it into forecasts. So if I'm a CEO of a listed gold miner, am I going to bet on the oil price going up or am I going to bet on the price going down, am I going to study the global oil market and take a view on supply and demand, take a view on OPEC's position of cutting supply, or not, take a view on what price will force the closure of the US shale oil industry, potentially forcing the price up, or not, OR would I lock in some certainty and focus of the core business of gold mining and production? I'm pretty sure the likes of NST have much more important things to focus on than gambling on the rise and fall of the oil price.
As for the price they pay "just in case", I'm pretty sure their not that dumb, ever heard the phrase "everything's negotiable", sure at a low oil price maybe ERJ might have to reduce their 80% gross margin, what a bummer, that might mean a 4 or 5 year payback rather than a 3 year payback, what a bummer, IF oil prices stay where they are. Just maybe they negotiate a sliding scale of price based on where the oil price sits. It's got to be win/win. I'm sure everyone doing the talking on both sides is well aware of that.
So your a bit of an expert on everything Jantimot, where do you think the oil price will be in 6 mths, 12 mths and lets say 2 years, and why?
VPR Price at posting:
4.4¢ Sentiment: Hold Disclosure: Held
