Fuel Hedging 101: A Guide to Managing Fuel Costs

Fuel hedging can be a game-changer for businesses that rely heavily on fuel for their operations. By locking in a fixed price for fuel, companies can shield themselves from price volatility and budget accordingly.

Fuel hedging allows companies to manage their fuel costs by taking a position in the market that offsets potential price increases. This can be done through futures contracts, which are standardized agreements to buy or sell a specific quantity of fuel at a fixed price on a specific date.

The goal of fuel hedging is to reduce the risk of price fluctuations, which can have a significant impact on a company's bottom line. For example, if a company locks in a price of $3.50 per gallon and the market price rises to $4.50 per gallon, they can save $1.00 per gallon on their fuel costs.

By hedging their fuel costs, companies can gain greater control over their expenses and make more informed decisions about their operations.

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Fuel hedging can help companies avoid budget overruns caused by a volatile oil market. By fixing your fuel costs, you can protect your budget and profit margins from unexpected price changes.

Companies with large fuel costs can benefit from fuel hedging, as it can mitigate market volatility and protect their budgets. Fuel hedging can also improve cash flow and stabilize prices.

Having a fixed fuel price that is not affected by market fluctuations can help with things like keeping equipment in service and reducing layoffs. Fuel hedging can also help realize profits for owners and shareholders.

Companies should consider their fleet size, oil price tolerance, and current and future financial goals before deciding if fuel hedging is right for them. Experts can help control energy costs for months or years.

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Developing a tailored energy risk management plan is crucial for shippers to manage their fuel costs effectively. Hedging fuel consumption is a highly effective strategy that shippers should consider during their budgeting cycle.

By locking in a fixed price for the fuel used to transport their products, shippers can improve cost management, which ultimately leads to profit margin stability. This can be achieved by implementing a tool like T-Fuel, which seamlessly integrates with a shipper's existing Fuel Recovery program.

T-Fuel allows shippers to hedge up to 85% of their wholesale fuel expenditure, thereby establishing budget certainty, improving cost management, stabilizing profit margins, and ensuring a steady return for shareholders.

A network-specific fuel hedging strategy is valuable for shippers looking to manage their fuel budget. By mitigating the risks associated with volatile fuel prices with a tailored hedging program, shippers can benefit from cost stability and predictability, which can lead to profitability.

Here are the key benefits of T-Fuel:

By considering these benefits and implementing a tailored hedging plan, shippers can take control of their energy costs and experience budget certainty like never before.

Fuel hedging contracts can be a bit overwhelming, but let's break them down into manageable types.

A futures contract is a standardized agreement between two parties to buy or sell a specific quantity and quality of a commodity at an agreed-upon price for future payment.

Purchasing current oil contracts is similar to buying a futures contract, where an airline purchases large amounts of current oil contracts for its future needs to mitigate rising fuel costs.

Call options give the buyer the right to purchase a stock or commodity at a specific price before a specific date, and can be used by airlines to hedge against rising fuel prices.

A swap contract locks in the purchase of oil at a future price at a specified date, which can be a more stringent approach than a call option.

Options are insurance, and a put option allows an investor to sell a stock or commodity at a future date for a price agreed upon today.

A collar hedge uses multiple call and put options to protect against rising fuel prices and limit losses, which can be a useful strategy for fuel hedging.

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