Menu

INT

Get more margin and less risk

Keeping fuel costs within a predictable range protects you from unexpected changes in the price of fuel. Changes that could otherwise seriously impact your budget and profit margin.

Swaps

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:

  • the monthly volume
  • an official fuel price index (Platts/Argus)
  • a hedging period (e.g. 2 months)
  • a Fixed Price (e.g. 100 per tonne)
     

Month 1

Monthly average settles e.g. at 120 per metric tonne (20 avobe 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:

  • Rising fuel prices could seriously undermine your business
  • You have a set budget and would like to lock in your future fuel prices
  • You would like effective security against fluctuating fuel prices

 

Benefits Disadvantages
Protection from price volatility Opportunity loss if market prices fall
Flexibility in physical supply Potential basis risk
No upfront premium  

 

You may also be interested in

QUARTERLY OIL MARKET OUTLOOK

Get our take on recent events in the oil market and our opinions on the direction the market is likely to take...

Read more

TURNING VOLATILITY INTO SECURITY

If the only things we provided were hedging solutions for fuel price risk management, we would be...

Read more

OUR VALUES

Our values are the guidelines for our actions and behaviour. We work hard to create long-tem value...

Read more