Neste Oil’s business, personnel, assets, and operating environment are exposed to a wide range of operational risks due to the extent, diversity, and nature of the company’s business activities and areas. Neste Oil recognizes that risk is an integral and unavoidable component of its business and employs continuous operational activities to tackle these risks. Neste Oil promotes a risk-aware culture in all areas of the company’s decision-making.
Neste Oil focused on managing risks related to volatile commodity and foreign exchange markets during 2011. The risk management principles employed in margin hedging were reviewed. Neste Oil’s advanced, high conversion refineries give the company reasonable natural protection in its Oil Products’ business, which is essentially a low-margin activity by definition. The normal margin hedging ratio used by the Company is therefore relatively low. A higher hedging ratio can be used if required by the Group’s financial position. In the Renewable Fuels business, a significant proportion of sales volumes are hedged due to the lack of natural margin protection in renewable products.
Uncertainties related to the development of the global economy resulted in volatility in the oil market during 2011. This volatility is expected to continue, as solutions for the challenges facing economies around the world have yet to be found. In order to secure the Group’s financial position, Neste Oil has hedged approximately 30% of its Oil Products volumes for 2012.
Neste Oil’s foreign exchange risks have been hedged according to the company’s corporate risk management principles.
The recognized risk related to the slow progress of biofuel legislation in Europe and the US materialized and resulted in lower-than-expected sales volumes at Renewable Fuels for the major part of 2011.
Read more about financial risk management in the Financial Statements section of the Annual Report.
In order to secure the Group’s financial position, Neste Oil has hedged approximately 30% of its Oil Products volumes for 2012.