Aiming to reduce volatility in the commodity markets

Situation

Eric and Henry, longtime clients of J.P. Morgan Private Bank, own an oil company in Oklahoma that Eric inherited from his parents. The pair have been concerned with the declining price of oil, as their wealth is primarily generated from selling oil in the physical market to suppliers across the state.

Our Approach

Eric and Henry reached out to their J.P. Morgan team member to discuss their concerns about commodity price risk. The team looped in the Cross Asset Solutions team which helped Eric and Henry put in place two different strategies to help protect the value of their oil production. They locked in a future price via an oil swap on part of their production and established a set minimum value by purchasing a put option on the other.

Outcome

With their oil production background, Eric and Henry were pleased that the swap could potentially provide more stable cash flows, aiding future planning amid commodity fluctuations. The strategy aimed to help reduce volatility in the pair’s portfolio by adding a degree of predictability to future cash flows.