Energy markets are constantly shifting. Seasonal demand, global supply, and unpredictable weather can all cause prices to spike. For businesses that depend on heating oil, diesel, or gasoline, this volatility can create real budget challenges. One solution is oil and gasoline forwards, a strategy to help protect both your supply and your bottom line.
What Are Oil and Gasoline Forwards?
Oil and gasoline forwards are a financial instrument that allows you to lock in a fuel price today for delivery in the future. Instead of waiting to see where the market will be, you secure your price in advance. When the time comes, your fuel is sold at the contracted rate.
Whether you lock in all of your supply or just a portion, a forward strategy can protect you from market volatility. By planning ahead, you gain control over costs and eliminate the stress of purchases during peak demand.
How Oil and Gasoline Forwards Work
Let’s say you are a property manager that owns several apartment buildings that use heating oil. Rather than waiting until winter to purchase, you agree in September on a fixed price and delivery schedule with your supplier. When January arrives, your fuel is delivered at the rate you locked in — even if the market has gone up. The same scenario applies to companies that supply heating oil to residential properties. The procurement manager of a heating oil delivery company can also lock in their rate ahead of the season to ensure budget certainty regardless of the sways of the market.
This strategy is not reserved for winter, though. You can apply this same strategy to any season. For example, if your company needs diesel in the summer, you can create a forward contact for that need as well. Contracts can be customized to fit your needs.
These types of forward contracts can apply to heating oil, diesel, gasoline, kerosene, biofuels, blended fuels, etc. The structure is flexible. Contracts are designed around how much fuel you need, when you’ll need it, and which product best fits your operations.
Market volatility by nature moves both up and down. So, while a forward contract locks in your price, another option to consider is downside protection. When opting for forward programs, check with your supplier to see if there are ways to cover yourself if the market falls. For instance, Sprague offers its customers a downside protection product in the event that the market goes below your locked-in price.
Why Businesses Use Forwards
Consider a business that contracts in September for 50,000 gallons of diesel at $3.10 per gallon for delivery from January through March. By February, the market climbs to $3.50. Thanks to the forward, the business still pays $3.10, saving $0.40 per gallon. On 50,000 gallons, that adds up to $20,000 in savings.
A forward contact can give you:
- Price Certainty. Knowing your fuel costs in advance makes annual planning easier and more reliable.
- Protection Against Price Spikes. If market prices rise, your forward shields you from higher costs.
- Supply Security. Your fuel is reserved ahead of high-demand seasons.
- Margin Stability. For resellers, forwards can protect profit margins from being squeezed by sudden price jumps.
These advantages make forwards especially valuable during times of market volatility.
When Forwards Make the Most Sense
Forwards are often most effective before seasonal demand peaks. Locking in heating oil ahead of winter or gasoline and diesel before summer can help businesses avoid the most common spikes. Forwards are also useful during uncertain times, such as geopolitical disruptions or supply chain bottlenecks.
If your fuel costs are a significant part of your budget, forwards can be an important tool for financial stability.
How to Get Started
Oil and gasoline forwards are most effective when built around your specific usage, timing, and budget needs. That’s why working with an experienced partner is so important.
Sprague has been helping businesses across the Northeast secure reliable fuel supply and pricing strategies for more than 155 years. From fleets to municipalities to fuel resellers, we design wholesale fuels and delivered fuels forward contracts that can reduce risk and strengthen budget confidence. As the operator of one of the largest liquid fuel operations in the Northeast and with a supply footprint that spans more than 16 terminals across the northeast US and into Quebec, Sprague brings a deep understanding and valuable expertise in fuel purchasing and supply strategies.
Waiting for the market to set your fuel price can be a costly gamble. With oil and gasoline forwards, you can lock in costs, protect your margins, and secure your supply well in advance. Take control of your costs and reach out to Sprague today.
Disclosures:
All information is from Sprague Energy unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.
The information provided is provided for informational purposes only and does not constitute advice and should not be relied on as such. The strategies and products discussed in the contents may not be suitable for all customers and are not obligations of Sprague Energy or guaranteed by Sprague Energy. Nothing contained in this post or on the Site should be construed as a solicitation of an offer to buy or an offer to sell a commodity, or recommendation to purchase a commodity or to engage in any other transaction. Nothing contained herein takes into account any customer’s particular objectives, strategies or tax status.
Forward contracts do not guarantee savings.
The views expressed in this material are as of the date of this blog post and are subject to change based on market and other conditions. This material may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance or results and actual results or developments may differ materially from those projected.
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