Oil prices have been on a run and have increased from $30 a barrel a year ago to $40 dollars six month ago to today's spot price being $60 a barrel. Henry's plastic company uses oil as to make plastic parts and is concerned that he will have to increase the price of his goods, if oil prices continue to increase. As such he would like to lock in the future price of his raw materials by entering into an agreement with a producer that may wish to take an offsetting position. The oil company, Oilco is in agreement to do the swap and that way they can both lock in their future production. 

The one year forward price at which they will transact is $65. One year later - spot prices are actually $62 a barrel. 

Who made a profit/loss and how much were the losses/gains? The volume of oil contracted between the two parties is 35,000 barrels.

Answer rating: 100% (QA)

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