What is Financial Fuel Hedging?
Financial Fuel Hedging (also known as a “transactional” or “paper hedge”) is a financial agreement used to lock in fuel prices for a set volume over an agreed period, without making any changes to your fuel buying and supply arrangements.
Fuel prices can fluctuate significantly due to factors beyond the control of either the customer or supplier, including geopolitical events, changing supply and demand, and even movement in the exchange rate (as oil and refined products are traded in USD).
Portland can lock in a guaranteed fuel price for 3-24 months, meaning that your exposure to market volatility is completely removed during that period, providing complete budgetary certainty.
How does Fuel Hedging work?
At the start of the month, Portland provides you with a financial settlement based on the difference between the agreed fixed price and the previous month’s average wholesale price.
While wholesale prices can rise, they can also fall below the fixed rate, and customers remain obligated to pay the agreed-upon price. Therefore, a fixed price mechanism should not be used to try to ‘beat the market’ e.g. fixing with the expectation that the daily market will rise, but as a fuel cost management tool.
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- If the market is higher, Portland pays you the difference.
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- If the market is lower, you pay the difference to Portland.
What are the key benefits of Fuel Hedging with Portland?
Guarantee a locked in fuel price: enabling budgetary certainty, safeguarding against changes in fuel pricing and completely removing your exposure to the market.
Companies of all sizes can lock in a guaranteed price: flexibility in fuel volumes allows us to offer our services to companies of all sizes.
No need to switch fuel suppliers: independent from your supply agreements, Portland’s fuel hedging products offer companies of all sizes the opportunity to lock in a guaranteed fuel price.
Extremely low minimum volumes: we can tailor the fixed volume to your requirements.
No fees: no upfront fees or hidden costs.
Flexible coverage: all or part of your expected fuel usage can be fixed.
Sector Specific Benefits:
Public Transport (Bus & Coach): predictable fuel expenses enable you to set ticket prices based on fuel spend.
Logistics/ Haulage: budgetary certainty will help you protect and secure profit margins.
Construction: knowing your fuel costs will ensure you can better manage project budgets.
Agricultural: flexibility to choose a short-term fix covering the harvest period, will help you to plan fuel costs in advance and forecast revenue more accurately.
If you are interested in fuel hedging, get in touch with one of our specialists today.
You are a haulier interested in diesel fuel hedging.
You already have a fuel supplier who you’ve worked with for years and have an excellent relationship with, but you are worried about the volatility of the market and are struggling to budget properly due to the uncertainty.
You approach Portland wanting to fix two of your full loads of diesel per month for a 6-month period.
Based on your required volume, contract period and duration, Portland advises a fixed diesel price.
This price meets your expectations and provides you with a comfortable profit margin, so you lock it in.
The start of your fixed diesel price contract begins, and you continue to receive your fuel completely as normal from your usual supplier.
At the start of the next month a settlement comes through from Portland which provides a breakdown of the average daily published prices from the previous month.
The market price has remained high throughout the month due to ongoing geopolitical conflict and so the average price is higher than your fixed price.
This means the settlement you receive for this month is a credit from Portland, which amounts to the difference between your fixed price and the average price for the month.
The same happens again next month, your fuel is supplied as it always has been and at the start of the next month you receive your settlement.
Unlike the previous month, last month the market fell, so the settlement you now receive is an invoice, which means you must pay Portland the difference between your fixed price and the average price.
This continues until the end of your fixed price diesel contract. The oil market rises and falls, but this doesn’t matter because by locking in a price, you are aware of exactly how much you will be paying for your fuel.
