I actually work in this sector, kind of! We have several brokers who trade products related to Jet Fuels, and this is basically how it works. An airline might have contracts going out years based on how they think the price of fuel will move.
The idea is basically this (for those interested).
I'm Potato Airlines, and right now its early 2014. My planes use kerosene based fuels and prices got really high really fast in 2011. 2012 seems pretty unsteady, so I want to do something about this.
I decide to go ahead and buy a Future on Jet Fuel. This is a contract between myself and another person that says 'I will pay this much for Jet Fuel at this time'. If the price has gone higher since then, I profit. But if the price is lower, I take a loss. There is more complexity than that, but that's the simplest way of looking at it.
So, I might do a spread of Futures calls. I know summers can be rough with travel, so I want to buy futures for June through August. Its January 2014, and Jet Fuel is currently trading around $2.92 per gallon. Looking at the list of published settles, CME (Chicago Mercantile Exchange) has the following:
OK, so thats where the market seems to be moving. Even through December 2014, we're hovering around $2.82, so I've got a pretty good idea of what to do here.
I decide to buy some Futures Contracts for June, July, and August at these prices. Now, I'm not buying per gallon - a contract unit is 42,000 Gallons!. And I'm not just buying one. Last week there were around 21 units traded, which is about 882,000 gallons. So lets go with that - I'm buying 7 units a month for three months total, 21 units total for 882,000 gallons total. Based on my settle price, I'm paying: