Summary of the impact that basis has on hedging: A well thought out hedging structure that analyzes historical basis can significantly lower the cost of hedging your price protection program.
Chart AWHAT ABOUT SUPPLY CONTRACTS?
It’s presumable that the last time many of you heard the term supply contract articulated was while sitting around the office or garage with your father or grandfather. There was likely considerable musing about the good ol’ days when the supplier painted (branded) the oil trucks with the Texaco star or Exxon logo and credit lines carried on for months!
Supply contracts are gradually finding their way back into logistics portfolios today. At Hedge we have been negotiating supply contracts since the late 1990’s. Most of these were based on an index like Platts back then and were not as lucrative as they are (or can be) today.
Why reconsider this old relic for purchasing a portion of your oil supplies? The supply chains in the Northeast and Mid-Atlantic regions are slowly degrading and have us living on a knife’s edge even in the mildest of winters. One
only needs to look at the diminished storage and refining capacity over the past 15-20 years to come to this conclusion. PADD 1 inventory data reveals a chronic shortage of supply every winter. Yet we seem to dodge that bullet (major supplier outages) most years. This is likely due to the
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JUNE 2025