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It is May 15. An oil producer has negotiated a contract to sell 1 million...

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Accounting

It is May 15. An oil producer has negotiated a contract to sell 1 million barrels of crude oil. The price in the sales contract is the spot price on August 15. Quotes:

Spot price of crude oil: $60 per barrel

August oil futures price: $59 per barrel

How does the trader use the future contract to hedge the crude oil price volatility and receive $59 per barrel on August 15? Describe the cash inflows and outflows from selling crude oils and future contracts when crude oil price ends with $50 and $70 on August 15, respectively.

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