Weather hedging (for fuel dealers) can best be described as a method to recoup some level of the lost fuel delivery and service profitability that otherwise would have been earned in a warmer than normal winter. They are financial derivative tools designed to counter that hackneyed refrain of helplessness we so often hear: “Hey, we can’t control the weather.”
As retail prices increase, customers who are on pricing programs are shielded from price spikes. Sure, it costs money to be on a cap program, and you might have to be on a budget plan AND have a service contract. But the savings… Caps are intended to protect customers from price increases and allow them to benefit if prices fall. It does come with a cost (the costs to hedge the cap), but those costs are an investment that can yield fantastic results! Dealers who offer caps and hedge them (properly) meet their profit goals and earn a good...
Is a “steady basis” a thing of the past? Will it return to normal? When might it happen? What if my supplier doesn’t offer me a fixed diff? What if I don’t want one? All of these questions are “top of the mind” as we plan for next winter.
On the last day of 2021 the price of WTI crude oil futures closed at $75/bbl. About 10 weeks later, the price had risen to over $90/bbl., and then just 10 days after that, prices traded over $130/bbl. In a 10-day period in February, ULSD futures rose from $2.85/gallon to over $4.50/gallon, an increase of…
If there were ever a time to reassess pricing, hedging, inventory management, delivery planning, and asset utilization…now is the time to do so. Sales, marketing, finance, accounting, operations and logistics must be integrated and planned together in order to ensure you operate an efficient business!
