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Oil Swap

Financial contract where parties exchange cash flows based on differences between fixed and floating oil prices.

An oil swap is a financial derivative in which parties exchange cash flows based on fixed and floating oil prices without physical delivery.

Swaps are used by producers, refiners, and traders to hedge price risk or speculate on crude movements. They provide exposure to oil price changes while minimizing logistical constraints.

Settlement depends on benchmark prices such as Brent or WTI. Swaps can be structured monthly, quarterly, or annually, offering flexibility in risk management.

Effective use of oil swaps requires understanding underlying benchmarks, notional amounts, and market liquidity.

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