By fixing your fuel costs, you can offset the risk of unstable fuel prices and eliminate budget overruns caused by an unpredictable and volatile oil market
Fuel Hedging, also known as Fuel Risk Management, is a tool that helps companies mitigate the risks associated with fluctuating fuel prices. It enables them to secure a fixed or capped price for a specific fuel type and for a pre-determined period. This way, companies can reduce or eliminate the impact of volatile fuel prices on their operations and budget. Fuel Hedging can be applied to various types of fuels, including diesel, gasoline, jet fuel, and other refined products.
Reasons for Fuel Hedging.
Fuel Hedging is a financial strategy used to protect against rising fuel costs. It involves entering into a contract to lock in a specific fuel price for a set period of time. This helps companies, especially small and medium-sized businesses (SMBs), secure their budget and profit margins by avoiding unexpected spikes in fuel prices, which can severely impact their bottom line.
Hedging provides stability to fuel expenses and offers peace of mind by reducing financial uncertainty, improving cash flow, and allowing companies to focus on their core business operations. It is a smart and effective way for SMBs to take control of their fuel expenses and maintain a competitive advantage in today's unpredictable energy market.
CEO, Stabill Tech
"At Stabill, our purpose is to revolutionize the way people defend themselves against soaring fuel and energy prices. We're on a mission to make it possible for everyone. How? By fusing our deep roots in the professional market with the latest and greatest tech."
Utilizing Hedging to Minimize Your Exposure to Rising Fuel Prices
Let’s assume that you own a trucking company, with a variety of rig sizes, eighteen-wheelers, wreckers, and other heavy equipment, all with diesel engines. To ensure that your fuel costs do not exceed your budgeted fuel price, you have been asked to “fix” or “lock in” the price of your anticipated fuel consumption. Here is an example of how hedging on diesel fuel might work for your company
As a business owner, you're facing the challenge of rising fuel prices. You want to secure a set price for diesel fuel to stay within budget for the month. To do this, you reach a fixed price agreement with a hedging firm for diesel fuel for that month, locking in your rate at the current average price of $1.50 per gallon.
Throughout the month, you buy diesel fuel as needed at the current market price. At the end of the month, if the price of diesel has increased, let's say to $1.85 per gallon, the hedging firm owes you the difference of $0.35 per gallon for the 10,000 gallons you bought, which is $3,500. This means that your cost for diesel remains locked at the agreed upon price of $1.50.
However, if the price of diesel decreases and goes down to $1.15, you'll pay that lower price with no penalties. Your ultimate goal is to maintain your budgeted cost for the month and keep it as low as possible
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Benefits of Having a Fixed Priced Program in Place
For companies that prefer to prepare for the unknown and budget accordingly, fuel hedging is a good option
Fuel prices are unpredictable and can change quickly. Hedging, or locking in a set price for fuel, can help protect your budget from these changes. You weigh the risk of potentially missing out on lower fuel prices against the reward of avoiding unexpected price increases.
In the example, your company wants to stay within a budget of $1.50 per gallon for diesel fuel. By entering into a fixed price agreement with a hedging firm, you secure this price for the month. If the price of diesel goes up, the hedging firm owes you the difference, keeping your cost at $1.50. If the price goes down, you may miss out on the savings, but you still meet your budgeted amount and keep your overhead cost within limits.
Hedging is a risk management tool, not a way to make money. It provides stability and peace of mind for fleet managers, who can focus on managing their fleet instead of worrying about fluctuating fuel prices.
Fuel Hedging: Benefits for SMBs and Individuals
Fuel prices can be unpredictable and volatile, which can cause stress for companies trying to budget and manage their costs. To combat these price fluctuations, some companies have implemented cost reduction programs such as downsizing vehicles, limiting vehicle usage, and holding virtual meetings. However, these solutions may not be enough to fully protect against the impact of unstable fuel prices.
Fuel hedging offers an alternative by allowing companies to lock in a set fuel price, regardless of market fluctuations. This can help maintain budget stability, reduce layoffs, and increase profits for owners and shareholders. Whether you have a small or large fleet, there are options for fuel hedging. It is important to consider factors such as fleet size, tolerance for fluctuating fuel prices, and financial goals when deciding if fuel hedging is right for your company.
For SMBs and individuals, fuel hedging offers several benefits. By fixing fuel prices, you can enjoy peace of mind knowing that you are protected from sudden spikes in fuel costs. This can also increase productivity by allowing you to focus on running your business without worrying about budget overruns. Additionally, fuel hedging can help save money by providing a more stable and predictable budget, allowing you to make better financial decisions for your company or personal expenses. Overall, fuel hedging can be a valuable tool for anyone looking to secure their budget and increase their financial stability.
CEO, Stabill Tech
"Our goal is to democratize the practice of fuel price hedging and empower individuals and small businesses to safeguard against the volatile fuel market. With the advancements in technology and automation, we strive to level the playing field and provide everyone with access to this valuable tool, formerly only utilized by professional managers for large companies."