MGRM’S CUSTOMER TRADES AND HEDGES
For many gas station and small business owners who did not have much bargaining power
against large oil companies, MGRM’s contracts were attractive ways to hedge themselves
against wild oil price fluctuations that could potentially hurt profitability. Moreover, falling oil
prices following the Gulf War offered an attractive opportunity to lock in oil prices at low levels.
MGRM offered various types of contracts to its customers. The most typical contract involved
MGRM selling a fixed volume of an oil product at a fixed price every month for up to 10 years.
The contracts gave the buyer an option of early termination with a specified mechanism, and
some contracts allowed the buyers to set the delivery schedule.