A Marketing Strategy to Address Fuel Buyers Concerns
The last three months have seen significant rallies in both gasoline and diesel prices. The most common question asked of POWERHOUSE during this time has come from commercial diesel fuel buyers. They want to know how to take advantage of historically favorable prices but still be able to benefit if prices collapse again.
Last year, at this time, Q4 ULSD futures prices were approximately $1.98 per gallon – 68 cpg more than at present. Yet the diesel market has already rallied more than 60 cpg from its low back in April. Fuel managers can still come in dramatically under last year’s budget numbers but they are anxious about buying now because of the possible return of Covid-19 related shut-downs driving prices lower once again.
A call option can offer the best of both possible worlds. Commercial fuel buyers could protect their Q4 diesel fuel budgets against NYMEX prices above $1.30/gal. for a cost of $0.13 cpg. This makes their breakeven costs $1.43/gal. – still far better than last year’s comparables. But instead of being locked in at $1.30/gal, the call option allows fuel managers to benefit should NYMEX prices move lower.
A call option offers a cap against higher prices without the concern of locking in a fixed price. Please reach out to POWERHOUSE to learn more about strategies that can help you protect your margins and grow your business.
David Thompson, CMT
Executive Vice President
3214 O Street, NW #2
Washington, DC 20007
Phone : (202) 333-5380
Fax: (202) 280-1383
Futures trading involves significant risk and is not suitable for everyone. Transactions in securities futures, commodity and index futures and options on futures markets carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract, meaning that transactions are heavily “leveraged”. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the clearing firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit.
Powerhouse Trading Disclaimer
Powerhouse is a branch office of Coquest Incorporated, a registered introducing broker. Coquest Incorporated, an affiliate of Coquest, or a company with common ownership with Coquest may act as a principal to a block trade with [Client]. When acting as principal, Coquest will be a counterparty to the block trade and (i) will not be acting as Client’s broker or agent and (ii) is not under any obligation to act in Client’s best interest.