www.fueloilnews.com | FUEL OIL NEWS | march 2014 19
occur when prices have gone up!)
Once you have determined what your
offer is going to be, and how to track it,
you need to act upon the actual hedging
of the risk (yes, you are assuming risk
when you contractually obligate yourself
to a pricing program with your custom-
ers). Lacking a hedge is pure speculation.
There are many forms of risk-manage-
ment (hedging), and you need to find
the right method — likely mixture of
methods — that suits you best. The pur-
est form of hedges are those that require
very little intra-season management.
They are set up such that the hedges
"self-manage" on a ratable basis.
While there may well be some imbal-
ances between actual weather and planned
weather, and there will be some moves in
the supplier "diffs" (see this winter), the
desire to think that you "know better"
and try to "trade for profits" usually has
two consequences — both bad.
The first is that you spend a lot of
time trying to watch the market prices in
order to make a successful guess, instead
of running your business and taking care
of your customers.
The second is that most speculators
are wrong — and you likely won't be any
better. If you think that you can predict
what oil prices will do, you CERTAINLY
should not bother owning/managing an
oil business. You might as well just trade/
speculate for a living.
We have been hedging for dealers
for the past 24 years. Our mantra has
always been the same: Hedge, don't spec-
ulate. Program offerings are excellent
to maintain and grow businesses. With
the wild swings that we saw this winter,
demand from customers will only grow.
However, before either dismissing the
customer desire because of the complexi-
ties, or just making offers because "prices
can't be crazy again next year" take some
time and be logical. Plan, execute, track
and modify as needed. Find someone
that can help you through the complexi-
ties — they are there. More importantly,
find someone who will explain the com-
plexities in a way that is understandable
and not intimidating.
l F O N
Philip J. Baratz is president of Angus
Energy which he co-founded in 1991, and
the managing member of Angus Partners,
LLC. Angus began providing hedging ser-
vices in 1991 and has grown steadily, with
over 600 clients including publicly traded
companies and municipalities. Angus offers
a diverse range of products and services to
distributors and end users, each customized
to the needs and locations of the client.
By PhiliP J. Baratz
Fuels
