luda002

probably oversimplifying it, but what about in these terms:

When commodity prices are low, producers (e.g. oil companies) are hurt by the lower prices. When prices are high, users (e.g. airlines) are hurt by the higher prices.

So you have a struggle between short hedgers (the oil company) and long hedgers (the airlines). When prices are perceived as high or likely to increase, the airline will enter into a futures contract to guarantee a locked in price to control costs. WHen prices are perceived as low or decreasing, the oil company could enter into a futures contract to lock in its price to reduce uncertainty on its revenue.