QUARTERLY OIL MARKET OUTLOOK
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Read moreKeeping energy costs within a predictable range protects you from unexpected changes in the price of energy. Changes that could otherwise seriously impact your budget and profit margin.
A Swap is a paper hedge agreement that allows you to fix your fuel prices at a predefined level, independent of future market movements.
Here's an example of how it works
To begin, you and Global agree upon:
Month 1
Monthly average settles e.g. at 120 per metric tonne (20 above the Fixed Price). Global pays you 20 per tonne in cash, compenssating you against the increase in spot prices.
Month 2
The monthly average price was 90 per metric tonne (10 below the Fixed Price). You pay Global 10 per tonne in cash, which counterbalances the lower spot prices.
Result
A fixed predictable fuel cost, as the changes in the spot prices are offset by the payments of the Swap agreement.
At the end of each calendar month, the settlement amount is based on the difference between the monthly average of the price index and the Fixed Price.
Three good reasons to use this strategy:
Benefits | Disadvantages |
Protection from price volatility | Opportunity loss if market prices fall |
Flexibility in physical supply | Potential basis risk |
No upfront premium |
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