Although fuel prices are the lowest they have been in two years, some analysts are recommending that truck fleets hold off on making high-volume purchases because they believe prices will continue to fall throughout the winter.The practice of buying fuel contracts on the futures market — known as hedging — can protect the purchaser against large price hikes by locking in a low price for a specified period of time. Contracts can range from several months to several years, and essentially can at least temporarily take the sting out of rapidly rising prices.Essentially, companies buy a specified volume of fuel in futures contracts on the exchange for coming months. If the market price moves above the contract price, the company earns a profit that it can then apply to its physical fuel contracts with a supplier, thus offsetting its fuel costs.This story appears in the Dec. 10 print edition of Transport Topics. Subscribe today.
The practice of buying fuel contracts on the futures market — known as hedging — can protect the purchaser against large price hikes by locking in a low price for a specified period of time. Contracts can range from several months to several years, and essentially can at least temporarily take the sting out of rapidly rising prices.Essentially, companies buy a specified volume of fuel in futures contracts on the exchange for coming months. If the market price moves above the contract price, the company earns a profit that it can then apply to its physical fuel contracts with a supplier, thus offsetting its fuel costs.This story appears in the Dec. 10 print edition of Transport Topics. Subscribe today.