It’s a question Avfuel’s experts have received with increased frequency of late: how can today’s volatile market be managed? They say one answer is to hedge, such as through its Price Risk Management Programme.
When Avfuel introduced the programme at the end of 2020, the industry was experiencing 10 year lows on fuel prices; as analysts anticipated at the time, prices have continued to rise to exceed pre-pandemic levels. Analysts do not anticipate a let up anytime soon; Goldman Sachs recently projected crude oil to exceed $125 per barrel over the next few months.
“It is expected to take a number of years for significant capacity to come online, relieving the strain on oil prices,” says director of trading and logistics Muneeb Ahmed. “For this reason, we continue to advise customers to look into Avfuel’s Price Risk Management Programme. While fuel prices are high, we anticipate they’ll continue to rise. With a one year fixed forward price agreement, Avfuel can actually offer its customers a fixed price that is below current market values, saving customers money while providing stability.”
Fixed forward pricing (FFP) is one solution in the Price Risk Management Programme. As a simple solution to mitigate financial risks, an FFP agreement allows customers to buy a fixed monthly quantity of fuel at a fixed price over a specified period of time. This enables operations to stabilise cash flows and secure fuel costs, ensure margins and have confidence in budgeting, and benefit from price stability for 12–36 months.
Avfuel also offers capped pricing agreements in the programme. These agreements allow for no fixed minimum prices and no minimum volume commitments for a term of 12–24 months. As such, customers never pay more than their maximum fuel price, even when the market rises above it. But when the market dips below their capped price, the customer pays the lower price.
Both programmes can be extended to include carbon offsetting and sustainable aviation fuel to help operators reach their emissions reductions goals.