BY COLEMAN SHEAR

In our industry, it doesn’ t take long for a cold winter that generated strong margins to give way to uncertainty and risk issues. This year, we’ ve been experiencing uncertainty in the form of upward pricing pressures and supply. In the first six months of the year, we’ ve already seen sharp volatility in global fuel markets and upward pressure on distillates due to low inventories, refining constraints, sanctions and geopolitical risks. U. S. diesel stockpiles have not been this low since 1996. And despite softening demand due to fear of an economic slowdown, tight supplies are driving the price up.

To add to this, wildfires in Canada and sanctions on Venezuela have limited access to heavy crude, which many refiners run on. This will hurt available distillate supplies as well. Adding to the challenge, new sanctions on Russian energy exports will reduce available distillate supplies to Europe further creating a pull on US distillates. As these sanctions take effect in early

2026, risks of supply shortages are reflected in current pricing.

We are seeing that speculative traders are amplifying this volatility, and Commodity Trading Advisors( CTAs) are heavily net long on diesel, driving the market upwards. This positioning by speculators signals expectations of ongoing shortages and elevated prices into late 2025 and early 2026.

In this volatile environment, fuel marketers face mounting pressure to remain flexible and competitive while navigating supply shocks. A critical question emerges: how can local fuel retailers offer competitive prices without risking eroding their profit margins? Some companies are doing a good job as they navigate the market, others are missing the boat. What almost all companies can benefit from is an understanding of some of the new tools and strategies available to manage these challenges.

HOW CAN LOCAL FUEL RETAILERS OFFER COMPETITIVE PRICES WITHOUT RISKING EROSION OF PROFIT MARGINS?

DODGING BASIS BLOWOUT AND OTHER PRICING PITFALLS

In certain markets around the Northeast, fixed and capped price contracts are popular with heating oil customers, but they come with risks for fuel dealers. If you’ re in one of those markets, you’ ve experienced this firsthand, likely for decades. The difficulty that dealers often face is that they can hedge effectively against NYMEX pricing, but it’ s far more difficult to hedge successfully against price spikes at the rack, especially during market disruptions. For instance, in the winter of 2022-2023, U. S. oil supplies dropped, and Northeast rack prices soared well above NYMEX rates. Dealers’ hedges failed to cover the difference, leading to considerable losses. To avoid that outcome, many dealers began pre-purchasing gallons at NYMEX prices plus a fixed differential, and using futures contracts to hedge. However, when prices drop, margin calls can drain accounts, particularly during summer months when cash isn’ t coming into the business. Many dealers charge cap fees or other upfront fees to cover these costs, but fuel companies have traded one kind of risk( losing their shirt by not being hedged effectively at the rack) for another kind( losing their customers over unappealing and expensive cap programs).

LEARNING FROM THE UTILITIES

Sometimes the solution to a big problem is hiding in plain sight. And sometimes you need to know where to look. In the case of risk mitigation, there is no better teacher than large energy companies and multi-national corporations. These entities simply cannot afford to and will not take on the risk of getting their energy procurement strategies wrong. Power companies often use fixed or capped pricing to manage risks while supplying customers at stable rates. These companies develop sophisticated physical contracts that protect margins while meeting customer commitments. They don’ t take on the risk themselves and they protect every unit of fuel they need.

This kind of approach is becoming increasingly available to fuel dealers in our industry. Rather than relying on financial instruments that can miss the market or that are expensive and eat into your costs, the focus is on securing physical fuel contracts that are fully protected at the rack. Done right, the appropriate strategy completely eliminates risk, gets rid of summer time margin calls, gets rid of customer fees for programs( or gives you an opportunity to charge fees and get ahead of the

www. fueloilnews. com | FUEL OIL NEWS | SEPTEMBER 2025 13