Brandon Colantonio Energy (BCE), an upstream E&P company, has entered into a contract to sell 4 million barrels of oil to be delivered in December 2017 to Lyndie Simmons Petroleum Refining and Petrochemicals Inc. (LSPRP). The parties agreed to use the futures settlement price on the delivery day as the sales price. The contract was entered into in November 2016; the spot price at that time was $45.50 per barrel and the futures price for delivery in December 2017 was $50.50 per barrel. The producer enters into a short position in the futures market to hedge the price risk.

Crude oil prices rise to $49.50 per barrel on the delivery date in December 2017 and BCE has to sell the crude oil at this price per the sales contract with LSPRP. BCE buys back the futures contract at $49.50 per barrel. Assume that the transaction involves no commissions.

How many futures contracts does BCE need? (A contract is 1000 BBls)

Group of answer choices

400 contracts

4000 contracts

40,000 contracts

none of the options are correct

Answer rating: 100% (QA)

ANSWER D none of the options are correct The futures contract buyers who maintain their position mus... View the full answer