Despite strong refinery margins over the past 18 months, Kim says some refiners have been reluctant to hedge due to the risk of capping upside potential when geopolitical uncertainty causes sudden price spikes. Macquarie’s European team structured basket options for two refiners to address this issue. “They get a put strike above their break-even level, and we set a core strike to pay for that put quite a bit higher so they are able to participate in the upside across their full margin,” Davis explains. “This is not an option you can just go back to the market to de-risk; you have to manage that over the life of the product.”
Kim agrees that the product “entails a bit of leg work” in this respect. “This type of complex basket option has dynamic risk as the various components move during the life of the deal,” he says. CGM prices the product and manages the risk over its lifetime using its quantitative analytics platform and “a lot of academic and interesting discussions with our various teams,” Kim adds. The product was inspired by refinery client concerns. “We ask clients to tell us about their problems,” Davis says. “And, based on our expectations of what’s going on in the market and their existing positions, we always try to help them.”
Recent market conditions have meant that CGM has restructured more deals than executed new hedges. For example, reduced flight schedules due to the Middle East conflict have left some airlines with hedges they don’t need.
“We can help them use the mark to markets on those hedges to, in effect, smooth out some of their earnings in the upcoming peak period, when they’ll probably be flying more. It’s about having engaged discussions constantly, not just looking at the day one hedge and leaving it alone. We can then restructure hedges to suit client needs, and that flexibility is extremely useful and powerful.”
Macquarie Group was named Oil and Products House of the Year at the 2026 Energy Risk Awards.