Is Your Company Exposed To Fuel & Petrol Price Fluctuations?
As car lovers, we know how important the cost of petrol is. Our gas guzzling cars can cost a fortune to run, especially with the ever rising cost of fuel. But some companies have a huge exposure to the price of oil, so what do they do to combat the ever increasing cost of oil? They use a company like Mandara Capital of course! Mandara are a fantastic hedging and derivatives trading company. They only hire the most skilled and talented people so they can deliver a world class service to their valued clients. They specialise in hedging the cost of oil to businesses with a high exposure, ensuring that changes in oil price will not affect their business once the contract is sorted.
Fuel hedging is known as a contractual tool which large fuel consuming companies use to reduce their exposure to rising fuel costs; these companies could include air lines, cruise lines and trucking companies. This allows companies who consume large amounts of fuel to establish a fixed cost. They will enter a hedge contract which protects them from fuel prices in the future which could be higher than the current prices. The contract means, that the price of fuel at the time its agreed, is the price which will be paid for fuel until the contract ends; this price is still paid even if the price of fuel increases out of the contract you would still pay the agreed price. There are different reasons that you should hedge such as its a proactive strategy for budget protection, insurance against price fluctuations and due to the oil market being volatile it means the fuel and oil prices fluctuate.
This then makes the companies better off as they are saving money. Oil price hedging can also employ what is known as a short term hedge. They use this to lock in a future selling price for an ongoing production of crude oil, which will only be ready to be sold at some point in the future. However, if the price of oil does drop hedgers will make even more money. Businesses will pay a fee and sign up with companies that specialise in hedging, like Mandara, this will help the hedgers to make more money.
Companies, who use a large amount of oil or fuel, hedge against the increasing prices to save themselves from paying more money if the price if they increase by a high amount. This means that no matter what price the fuel or oil goes up to they don’t have to pay that much, as long as the contract is still in date. The best time to do this is when the prices are low, so you can always get it for a fair price. This is becoming more popular for companies to do as it saves them money in the long term. Although, the price of fuel and oil could end up stay low for the next five years.