Swaps

What is a swap?

A paper hedge agreement that allows you to fix your fuel prices at a predefined level, independent of future market movements. Also known as "fixed price paper".  It requires no upfront payment.

Here's an example of how it works

To begin, you and Global agree upon

• the fuel volume
• a price index (such as Platts)
• a hedging period of 2 months (you pay fluctuating spot market fuel prices), and
• a fixed fuel price of $175 per tonne (the swap level)*
  

Month 1:

Average monthly price per tonne was $185 ($10 above the level)

Global pays you $10 per tonne

Month 2:

The average monthly price per tonne was $170 ($5 below the swap level)

You pay Global $5 per tonne

Result:

You profit by $5 per tonne over the 2 month hedging period.

*Swap levels are based on the forward markets at the purchase date.

At the end of each month, the amount paid (the settlement) was calculated on the difference between the average daily Platts settle and the agreed cap and floor levels.

To recap

When the Platts settle is above the swap level - Global pays you the difference.

When it's below the swap level - you pay Global the difference.