Fixed Price Strategy Gone for 2014?

Tina Hampton |

Download PDF Does a fixed price strategy still make sense for your business?

A new year is underway and the calendar isn’t the only thing that’s changed. Everywhere you look, companies and advertisers are promoting fresh starts, new trends, and latest developments. Even the government strives to reach new goals.

There are changes in the fuel industry too. For instance, fuel distributors may not be promoting fixed price contracts for 2014. It’s a significant shift from what’s been recommended in the last while. So, what’s happening?

Volatility is gone. For the first time in three years, prices across the country are starting to level out, making the discrepancy from one region to another noticeably less. For example, instead of 30 to 60 cent price moves, they are now only 5 to 20 cents.

While this is good news for both suppliers and consumers alike, the next logical question is – why?

Boston Crude Oil – The oil boom in North Dakota has left an oversupply in the market and lack of infrastructure for distribution created a bottleneck situation that drove prices down. With newly constructed railways to refineries in locations such as Tacoma, Ferndale and Vancouver, the regional market can take advantage of discounts and pass it on to consumers. Prices in Washington, usually 25 to 35 cents over NYMEX, have dropped about 25 cents.

Supply disruptions – With the influx of Boston Crude oil production, supply disruptions are not occurring as they have in the last year and a half. Disruptions can happen for a number of reasons, including operational difficulties, natural disasters and conflict. This has also kept fuel prices at a more even level.

Demand for gas down on west coast – Despite positive performance in some markets, the economy is still struggling in others.  High unemployment rates and household debt mean less spending at the pumps. The growing industry of more fuel-efficient vehicles, such as hybrids and electric, are also contributing to reduced consumption.

—Global demand for diesel on the rise – By 2020, ExxonMobil predicts diesel to be the fuel of choice for global transport. Increased commercial activity and changes in emissions standards will mean more consumption among jets, trains and ships. Diesel cars are also becoming more popular and tend to be more widely used in developing countries. As a result, refineries are producing less gas and more diesel for export.

These current conditions have effectively removed the market risk factor, so the need for price protection isn’t as great. However, if the regional supply slows down or the demand increases, price volatility could return, so it’s important to stay connected with your fuel distributor. Their Fuel Supply and Risk Marketing Manager has an expert understanding of the market and will be up-to-date on regional, national and global events that may affect fuel prices in the days ahead.

Even if market prices are stable, your business needs may still change. Whether it’s something planned or unexpected, your fuel distributor is there to help. With years of experience in the industry and professional services available for retail, commercial, industrial and automotive operations, working with them is one strategy you’ll want to keep.