If the ETF in the European market is tracking an oil company in the US, and now the oil price in the Middle East is likely to rise, how should I hedge this position?

P.S- I am preparing for Flow Traders interview. Does anyone have an idea about what they ask and what is their case study is about? Any help is appreciated. Thanks


Your question is not very clear, hedge which position ?

If you are the ETF issuer then you shall hold the US oil companies shares, period (eventually a fx hedge if your ETF is quanto), you have no direct exposure to Middle East oil prices.

If the question is how to replicate a long exposure to a US stock when you are in Europe, with no access to the US underlying. There is no definitive answer to that, use your imagination, mention the spread between Middle East crude and US or EU crude, the non-perfect correlation between crude prices and share prices that might impede the hedge, the cost of rolling the futures, etc. But it doesn't make sense, it would be suicidal to build an ETF on US oil shares by hedging with crude oil futures.

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