Rollover & basis
What is cross-commodity basis risk and how does it manifest when hedging localized fuel blends using standard CL contracts?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Cross-commodity basis risk arises when hedging a specific local fuel blend with a standardized CL contract leaves residual price risk from quality, location, or grade differences unhedged.
How it works
Because CL settles against WTI at Cushing, Oklahoma, firms hedging regional fuel blends like jet fuel or diesel face imperfect correlation, requiring additional spread hedges to manage remaining exposure.
An example
Jet fuel hedged with CL leaves grade basis risk.
Risk & limitations
Imperfect correlation can leave significant residual exposure.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.