Marine fuel hedging under the sulfur cap regulations

This paper examines the hedging potential of crude oil financial derivatives in the marine industry and concentrates on the dependence between marine fuels and crude oil futures. We argue that marine fuel consumers and producers can reduce uncertainty regarding their portfolios under environmental regulations aimed at air pollution reduction. Our results show that uncertainty can be reduced up to 72%. In addition, we find that complex dynamic hedging strategies do not provide significant benefits compared to the static method, and asymmetries in dependence structures are not driving the results. We also identify Gasoil and Brent Crude futures as the universal hedging instruments to manage uncertainty across the global ports.