in the price for the next 5 days . Under normal circumstances , this buyer would now move on to the myriad of daily distractions that typically consumes his / her day in the middle of a heating season .
What plays out from here happens on almost a daily basis . While the buyer has moved on to other issues , they have missed multiple opportunities to capitalize on the purchase just made . In chart # 3 we count 4 opportunities over just 2 days to take anywhere from a modest gain of 4 cents (# 1 ) all the way up to 11 cents (# 4 ) off the table . Furthermore , if we look past this 2-day period as the 5-day portal buy plays out , one quickly sees the market wipe out all of the initial gains . These scenarios play out time and again throughout the heating season . Hence another argument to outsource this task .
Now before you jump out of your office chair and start screaming “ Rich , that ’ s speculating !”, I am not advocating that you become a day trader in the oil markets or that you hire a day trader . We look at all opportunities first and foremost by using the retail margin as the baseline ! From this metric , all decisions are derived from the viewpoint that if the price action hands you a COGS that raises your retail margin some measure above your target , you should be hedging , or covering this gain in revenue . From there , it comes down to how you are going to cover . We built the software platform MarginTrak solely for this purpose . It ’ s a tracking system that focuses on just your rack to retail margins . Whether you use MarginTrak or employ a spreadsheet , you should engage real time monitoring ; particularly if using an outside consultancy .
Chart 3
Summary :
• Today ’ s energy marketers should consider outsourcing or engaging a firm to advise them on best practices in procurement and hedging .
• Energy marketers should give careful consideration before putting a firm or advisor between them and their suppliers , who play a pivotal role providing oil supply in all kinds of conditions .
• Regardless of how you engage an outside firm , you should deploy a tracking system to gauge performance .
• Supply contracts make sense only if you have back tested the offer and the data shows positive results .
The information provided in this article is general commentary , for educational purposes . Please feel free to contact me with any questions . I can be reached at rlarkin @ hedgesolutions . com . Or visit www . hedgesolutions . com .
Richard Larkin the founder and president of Hedge Solutions , Inc ., can be emailed at rlarkin @ hedgesolutions . com . Hedge Solutions ’ website is www . hedgesolutions . com . Larkin also founded Northland Energy Trading , which provides customized hedging products , and he created Hedge Insite , hedging software for fuel oil and propane companies . l FON
20 MAY 2024 | FUEL OIL NEWS | www . fueloilnews . com