To contract or not to contract, that is the question…or is the real question: when to contract? or at what price to contract???
These things can lead to a lot of stress, not only for the consumer, but for the energy consultant too! Over the years I have developed a strategy that helps answer some of these questions and alleviate the stress associated with planning out your annual energy budget. Let’s look at some of the tools that have helped me assist my customers with making educated decisions.
Recently, I spoke with a customer who has contracted for almost two decades. Though he feels contracting is usually a good option, he still remembers the time about 6/7 years ago when he locked in and the market tanked. His contract ended up being higher priced than the local market. This made him feel like he “lost”. I reminded him that other years his contract price was lower than the local market, so I guess you could say that he “won” during those years? I am not a huge fan of the “winning/losing” outlook. Customers will actually benefit more from a contract if they use it to set their budget for the year. When contracting time comes around and someone is ready to lock in their pricing for the year, I ask them a few questions:
- Is this a price you feel comfortable locking in?
- Will this price work with your annual budget? If not, what price will?
- Do you have a target we should be looking at?
When is a good time to contract? Again, I look at historical pricing. Fuel pricing futures tend to be at a lower level Dec-Feb. Though, this may not always be the “winner”, it is a great tool to utilize when making buying decisions. FYI: the best contract price offered last year was 12/29/19, but not this year, futures pricing saw a steady to stronger outlook though the first of the year. They remained strong up until the past few weeks. With talks of a less volatile year, fears of travel bans due to the Coronavirus (China) and possibly, just an all over relief that 2019 harvest is over, we are finally seeing crude oil looking for a reason to finally drop below that $55/barrel marker. So, this is not perfect, but it gives us a darn good idea of when; not to lock in futures pricing.
My suggestion is to talk to your local energy consultant and clearly explain your needs for the upcoming year. Together, you can come up with a plan for your spring/fall 2020 fuel needs. Again, I want to stress that locking in your fuel supply is not about winning or losing, but focusing on setting a budget for the upcoming season.
My final advice that I give to all of my customers is DON’T LOOK BACK! What I mean by that is; after you decide to lock in your fuel price at a value that works for you and your business, don’t drive yourself crazy by watching the market and constantly second guessing yourself and the decision you made. Please feel confident that you made a good decision and though pricing may or may not drop lower, you are going to be OK and a few extra pennies per gallon either way will not make or break your business!