Purchasing Heating Fuels
Tuesday, 25 October 2005 10:49
Energy prices are one every one's mind today as spiking prices of heating fuels cut into profits and consumers budgets. Prices have been moving up for the past two years culminating in the recent devastation caused by hurricanes Katrina and Rita. More than a month after the storms 66% of US gulf oil production and 55% of natural gas production are still shut in. In mid October 1.65 million barrels per day of refinery capacity, almost ten% of all US capacity is still out of service. Repairs have been slow due to difficult working conditions and displaced workers and prices are expected to stay high for the winter.
Purchasing heating fuels used in a commercial application requires an analysis of costs and revenues. The goal of purchasing fuel in advance is to guarantee supply and to lock in costs against revenue streams. The nursery industry in New England needs heating fuel in the winter and should be contracting for fuel in the late spring and early summer prior. Depending on the amount of fuel consumed, it should be purchased in blocks, possibly 25% at each time spread over a period of a couple of months. In the event you think prices will fall in the following winter, downside protection can be purchased from your supplier. For a fee your supplier can cap your price but in the event the market price falls, your contract price will fall also.
A money saving option would be for a few growers to pool their volumes and offer the contract to a number of companies to get the best terms and price. Aggregation will allow the supplier to offer hedging opportunities to companies who may be too small to get attention from their supplier.
High energy prices for the future offers incentive to make an investment in other ways to make heat. Waste oil or wood refuse burners are cheaper than oil or propane and are worth making the investment.
This article was written by Lew DeRosa, Petrohedge, East Hampstead, NH.
Lew DeRosa presented the subject of Purchasing Oil in a Tight Market at the MFGA/UMass Fall meeting on October 5, 2005.
Paul Lopes
