Fuel Prices Feel Out of Control?
Then You Need an Edge...Hedge
Companies that do nothing to manage market volatility are allowing unpredictable markets to set their fuel budgets for them, and today's energy markets are as unstable and unpredictable as ever.
The decision to implement a Price Risk Management strategy using carefully selected hedging products is NOT market speculation or a means to gamble on the price of fuel. PAPCO Energy Market Advisors can help you develop a comprehensive Price Risk Management strategy that offsets, or hedges, fluctuations in the energy markets, reducing your exposure to unstable fuel prices...so that the next time fuel prices spike, your budget does not!
What is Hedging?
The best way to understand hedging is to think of it as a transfer of risk. By hedging your fuel purchases, you are protecting yourself against an unpredictable event that causes a fuel price spike. The impact of a negative event on your bottom line can be significantly reduced if you are properly protected or hedged.
How Does Hedging Work?
Hedging your fuel costs with specific Risk Management Products focuses on the larger and most volatile components of the overall price of your fuel, refining and crude oil. Many companies tend to manage fuel budgets focused only on the daily price fluctuations within the 1-4% marketing cost component of fuel pricing (Graph A).
A comprehensive Price Risk Management Program allows you to manage all the cost components of fuel by "hedging" the volatility in the crude oil and refined product markets - the largest components affecting the price of gasoline and diesel (Graph B). This offers you the opportunity to have more control and to better manage the total dollars you spend on fuel rather than focusing on daily pricing alone.
Why Should You Hedge Energy Costs?
Price Risk Management focuses on how to reduce your exposure to fuel price volatility. If you are not hedging your fuel costs, you are really saying:
- You are comfortable with exposing your fuel budget to directional price risk.
- You accept the status quo using outdated fuel supply and procurement pricing strategies.
- You are able to absorb the negative impacts of volatile fuel markets and increases in fuel price.
- You are comfortable passing on price increases to your customers.
We collaborate with your team to develop a custom tailored Price Risk Management program and hedging strategy that is compatible with your company's business, culture, risk profile and financial goals.
You will have greater peace of mind knowing that we are constantly working on your targeted results to maximize potential cost savings. We handle all the details so you can focus on managing your core business!
Manage price volatility and increase your competitive advantage!
Contact us today for a free, no obligation consultation, and let our team create a completely customized price risk management and fuel supply solution designed to meet all your requirements.