Suppose the price of oil is $20 a barrel and you’ve promised a customer that you’ll sell it oil at that price for the next two years. In effect, you are now short oil. If prices fall, you’re in great shape, because you’re selling the oil for a higher price than it’s costing you. But if prices rise, you’ll have to sell the oil for less than it costs you to fulfill your promise. So if you don’t want to take that risk, you can hedge by taking an offsetting long position, or agreement to buy oil, at the same price. Thus, it doesn’t matter to you whether the price goes to $60 or to $10; either way,
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