BP (BP)

Oil Price Risk

        The Group's risk management policy with respect to oil price risk is to manage certain exposures in respect of its equity share of production and certain of its refinery and marketing activities. To this end, BP's supply and trading function uses the full range of oil price-related commodity derivatives available in the oil markets.

        The derivative instruments used for hedging purposes do not expose the Group to market risk because the change in their market value is offset by an equal and opposite change in the market value of the asset, liability or transaction being hedged. The values at risk in respect of derivatives held for oil price risk management purposes are shown in isolation in the table below. The items being hedged are not included in the values at risk.

        The value-at-risk model used is that discussed under Trading below. Thus the value-at-risk calculation for oil price exposure includes derivative instruments such as exchange-traded futures and options, swap agreements and over-the-counter options and derivative commodity instruments (commodity contracts that permit settlement either by delivery of the underlying commodity or in cash)

172

such as forward contracts. The values at risk represent the potential gain or loss in fair values over a 24-hour period with a 99.7% confidence level.

        The following table shows values at risk for oil price risk management activities.

Oil Price Risk

        The Group's risk management policy with respect to oil price risk is to manage certain exposures in respect of its equity share of production and certain of its refinery and marketing activities. To this end, BP's supply and trading function uses the full range of oil price-related commodity derivatives available in the oil markets.

        The derivative instruments used for hedging purposes do not expose the Group to market risk because the change in their market value is offset by an equal and opposite change in the market value of the asset, liability or transaction being hedged. The values at risk in respect of derivatives held for oil price risk management purposes are shown in isolation in the table below. The items being hedged are not included in the values at risk.

        The value-at-risk model used is that discussed under Trading below. Thus the value-at-risk calculation for oil price exposure includes derivative instruments such as exchange-traded futures and options, swap agreements and over-the-counter options and derivative commodity instruments (commodity contracts that permit settlement either by delivery of the underlying commodity or in cash)

166

such as forward contracts. The values at risk represent the potential gain or loss in fair values over a 24-hour period with a 99.7% confidence level.

        The following table shows values at risk for oil price risk management activities.