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School of Business | Department of Information and Service Economy | Logistics | 2012
Thesis number: 12784
Financial hedging practices and processes as a part of oil refining company's supply chain Case: Neste Oil
Author: Puumalainen, Saana
Title: Financial hedging practices and processes as a part of oil refining company's supply chain Case: Neste Oil
Year: 2012  Language: eng
Department: Department of Information and Service Economy
Academic subject: Logistics
Index terms: logistiikka; logistics; toimitusketju; supply chain; riskienhallinta; risk management; hinnat; prices; valvonta; control; kurssivaihtelut; volatility; öljy; oil; energia; energy
Pages: 126
Full text:
» hse_ethesis_12784.pdf pdf  size:2 MB (1420603)
Key terms: Financial risk management, supply chain, hedging, case study, price risk, currency risk, oil industry
Objectives of the Study For oil industry the volatile markets and the complex and global supply chain are one of the main characters. These characters also create a great number of risks for oil companies and especially market risks have gained importance to oil companies’ profitability during the past few decades. To be able to cope with increased market risks oil companies have started to get more involved in risk management and especially hedging.

The study aims to explore what are the hedging processes and practices in oil supply chain. Also a target is to shed light why hedging is an important part of oil supply chain and furthermore what are the challenges in oil supply chain regarding hedging. Further the thesis aims to increase understanding how hedging is positioned in oil supply chain i.e. in which parts of the oil chain there are risk exposures that require hedging. In addition a central purpose is to study how these two functions interact and why hedging can’t be implemented in isolation and why intensive information sharing is actually required between supply chain and hedging processes.

The purpose of the theoretical part of the thesis was to study existing literature of financial risk management and supply chain functions especially in oil industry environment. Further the aim was to study what are the interactions between financial risk management and company supply chain. In the empirical part the aim was to study in which parts of its supply chain Neste Oil hedges its risk exposures and how supply chain is dependent on hedging.

Methodology The empirical part of the study was conducted as a single case study within Neste Oil Oyj. The data was gathered through conducting semi-structured interviews with Neste Oil’s employees from operational management, sales and trading, and treasury departments.

Findings and conclusions Based on the literature review and interviews it was found out that oil company is exposed to market price risks or currency rate risks in each part of its supply chain. In addition in several parts of the supply chain decision making is dependent on hedging possibilities. As the complex oil supply chain makes it challenging to get the hedges to match the exposures, close interaction between functions is highly important and need to be secured.
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