This excerpt taken from the PBR 6-K filed Nov 12, 2008.
25.1 Market risk management of oil and oil products
Following the assumption of considering only the consolidated net exposure of the price risk of oil and oil products, the operations with derivatives, in general, are limited to hedging the results of transactions carried out on the international market for physical cargoes, i.e. they are hedge operations in which the positive or negative variations are totally or partially offset by the reverse results of the physical position.
The hedges for commercial transactions are contracted as short-term operations, in order to accompany the periods corresponding to the risk exposure of the commercial operations. The instruments used are futures contracts, forward contracts, swaps and option contracts. The operations are carried out on the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE), as well as on the international over-the-counter market.
The fair value of the derivatives for oil and oil products is derived from quoted market prices (without adjustments) for similar assets or liabilities.
The hedge operations settled during the period from January to September 2008 corresponded to approximately 58% of the volume of imports and exports traded in Brazil plus the total volume of the cargoes traded abroad.
The guarantees given as collateral generally consist of deposits. The balances of the margins given as coverage of commodity derivative operations on the stock exchanges and over-the-counter market of the Parent Company and of Consolidated, as of September 30, 2008, were R$ 394.363 thousand and R$ 605.437 thousand, respectively.
The following table summarizes the information on the current derivative contracts for oil and oil products.