commodityswaps
Commodity swaps are over-the-counter financial derivative contracts in which two parties exchange cash flows linked to the price of a commodity. The typical swap involves a notional quantity of the commodity, the identity of the commodity, a fixed price or rate, and a floating price benchmark. At each payment date, the party owing the greater cash flow pays the net amount to the other, effectively locking in a price over the term of the contract. Most commodity swaps are cash-settled, and physical delivery of the commodity is uncommon.
Common purposes include hedging price risk for producers and users, budgeting costs, or obtaining exposure to
Variants include single-commodity swaps, cross-commodity basis swaps (which hedge relative movements between related commodities), and index-based
Pricing and risk: the value of a commodity swap depends on current forward curves, price volatility, and
Regulation and market structure: commodity swaps are traded over-the-counter or, in some cases, cleared through central
Example: if one party pays a fixed price of, say, $70 per barrel and the other pays