the Atlantic , the oil cargoes showed up and prices , as well as basis , receded quickly . By January , energy marketers were seeing rack prices at a discount to the Nymex spot contract . The result was considerable buyer ’ s remorse after locking in inflated basis differentials . Prudence as well as due diligence is advisable .
Chart B
WHAT CAN ENERGY MARKETERS DO TO PREPARE FOR ALL POSSIBLE SCENARIOS THIS WINTER ?
What can energy marketers do to prepare for potential price spikes and supply interruptions ? And how can they avoid taking on excessive risk while gaining peace of mind ? I have advocated over the years , and to a higher degree in recent years , to review and consider supply contracts with your suppliers . This makes sense for both parties . Both you and your supplier then have a commitment to each other that allows the supplier to plan ahead and have the oil in place . This should be done in a transparent manner by utilizing an index like Argus , Platts , or the Nymex spot contract . The energy marketer should back test any index offer to ensure they ’ re getting a competitive price . We run a battery of data back testing for our clients when an offer is presented so that there is confidence in the contract .
The energy marketer should also be stressing their forward sales programs offers , like Caps and Fixed Pricing , to make certain that their margin on these programs is preserved . We use our own proprietary software , Hedge Insite , that provides a forward Profit and Loss analysis on these programs . l FON
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 .
18 OCTOBER 2023 | FUEL OIL NEWS | www . fueloilnews . com