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  • Writer's pictureS Potter

How does Diesel Hedging work?

How does Diesel Hedging work? Well actually it’s pretty much the same way as weekly pricing except that it’s for a longer period and an agreed volume. But if you use more, the extra is charged at that week’s regular weekly price, and if you use less, it rolls over to the following week(s).

Why is it a good idea?

If you need to budget, this is the only way. For example, lets say that you gain a new contract for your vehicles and it’s at a fixed price. What happened if the fuel market goes all ‘Bullish’ and rises massively high? Your built-in profit margin disappears and you may even end up losing money, so tight are many margins these days. But if you quote knowing the price of your entire transport costs, you can be confident that your profit margin is assured.

Is there a commitment? Simply put; yes. You contract for a set volume and a set number of weeks. Let’s say you need 1000 litres a week for 30 weeks. That is the minimum volume that you are committed to, so it’s probably best to set no more than 60% of your regular volume to ensure you’re not overcommitted.

What’s the procedure? You open an account with us and agree terms. You nominate a weekly volume, and how long you’d like to set the price for. We then gain a quote, and if needed, quotes over several days/weeks. When you’re happy to commit, we email a contract over to you, you sign it and email back, the diesel is yours; simple!

If in any week you use more than the nominated volume, the excess is billed at the weekly price for that week, we call that a 'floating' price. If you use less than the nominated volume in any given week, the shortfall rolls forward to the next week. You don’t lose the diesel you bought. Each week you’ll receive an invoice for the agreed volume at the agreed price plus any extra litres if you had any.

What if the weekly price goes lower than my Hedge? That can happen of course, but when the oil market goes down, you can be assured it will go up again quite soon, and usually higher! Look back at the history of Diesel pricing over the last several years and the trend is generally UP!

For example if you’d Hedged 1000 litres a week for 52 weeks on 1st November 2020 I’d have quoted you 89.95ppl. Now you’d be enjoying that price until the end of October 2021. Check that out against today’s price. Whereas, if you asked me for a price today, I’d suggest you may want to wait a week or so as todays price is very high, as we are all waiting on the results of the OPEC meeting (The Organization of the Petroleum Exporting Countries)and their decision may cause it to fall. That’s typical of the advice we always offer.

Call or email for a chat, we'll happily talk you through the system and how it may help your business to stay ahead of the competition.

Andrew & Sue

01525 300 040

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