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Minimize Price and Operational Risk

Price Risk Management

 

Avoid second-guessing what the market prices will do next. One of the major factors threatening the growth of any business is the uncertain cost of fuel and energy.

The market fluctuates - your fuel and energy spend shouldn't. World Kinect Energy Services recommends that any energy procurement plans should always be integrated with a solid risk management strategy. We help you stay on budget and to seize market opportunities by hedging your fuel and energy, whether we physically supply it to you or not. In addition to advisory, we can execute price hedges, utilizing a range of price risk management instruments with the aim of minimizing volatility to your business.

If you do not have the ability to easily pass on an increase in electricity, natural gas, and fuel prices to your customers, our price risk management experts provide the insight and data to help you hedge your commodity prices and smooth out potential market price fluctuations. World Kinect helps you assess how much risk is appropriate to take on to strike the right balance between uncertainty (your unhedged supply) and price certainty (hedged supply).

Why Choose Us?

Don’t gamble with the daily market prices, especially if you are a large consumer of energy or fuel.  Secure more protection against energy price volatility and more predictability for your budget.
 

Stabilized energy spend

Don’t gamble with the daily market prices, especially if you are a large consumer of energy or fuel.  Secure more protection against energy price volatility and more predictability for your budget.
 
Benefit from our deep expertise in physical and financial hedging products, along with a global supply footprint. As a public, Fortune 100 company, we offer a solid balance sheet and act as your transparent and strong financial counterparty partner.

Reliable partnership

Benefit from our deep expertise in physical and financial hedging products, along with a global supply footprint. As a public, Fortune 100 company, we offer a solid balance sheet and act as your transparent and strong financial counterparty partner.
Fully flexible and customized buying options from a full suite of hedging tools and contracts, both physical and financial. We always work with you to design price risk management strategies to accomplish the specific needs of your business.

Tailored to your goals

Fully flexible and customized buying options from a full suite of hedging tools and contracts, both physical and financial. We always work with you to design price risk management strategies to accomplish the specific needs of your business.
Get help to reach a consensus on risk objectives and a clear go-forward plan across different parts of your organization with diverse objectives. In our unique workshops, we bring together all your relevant stakeholders to discuss the best approach and get their buy-in.

Stakeholder alignment

Get help to reach a consensus on risk objectives and a clear go-forward plan across different parts of your organization with diverse objectives. In our unique workshops, we bring together all your relevant stakeholders to discuss the best approach and get their buy-in.
Do you want to be a market analyst or focus on your core business? We will stay on top of key price drivers and provide ongoing market intelligence and insights. We also deliver ongoing assessment of your portfolio and tactical recommendations.

Actionable insights

Do you want to be a market analyst or focus on your core business? We will stay on top of key price drivers and provide ongoing market intelligence and insights. We also deliver ongoing assessment of your portfolio and tactical recommendations.

How it Works. Managing Price Risk 

3 ways World Kinect recommends for you to control and potentially lower your fuel and energy cost:

1: Consuming Less
#1. Consuming Less
  • Conduct Energy efficiency audits - the highest cost reductions come from the TWH and gallons not consumed
  • Consider alternative fuel and energy mix (for example, CHP for onsite electricity production, or onsite solar vs.the grid)
  • Install fleet and tank telemetry, and use fuel cards to prevent fuel theft.
     
2: Managing Commodity Cost
#2. Managing Commodity Cost
  • Assess your price risk management strategy to mitigate unexpected price hikes
  • Hedge with fixed-price contracts if budget certainty is paramount
  • Hedge with flexible contracts with the potential to benefit from market opportunities
  • Switch to bigger fuel tanks to stop paying premiums for more frequent deliveries
  • Re-evaluate your current suppliers.
     
3: Managing Non-Commodity Costs
#3. Managing Non-Commodity Costs
  • Estimate grid cost reduction opportunities
  • Review tax reduction potential
  • Assess all legal reduction possibilities
  • Audit your electricity and natural gas invoices for billing and tariff errors.

How it Works. Price Risk Management Process 

Our process is dynamic and collaborative. We start by listening to understand your objectives and price risk tolerance. From there,  we determine the appropriate risk management, commodity, and non-commodity cost management, and hedging strategy that meets your unique goals. This is an ongoing process of continuous evaluation, mitigation, and improvement against your objectives for cost, carbon, and supply.

How It Works. Price Risk Management Models

Fixed Price Model
Fixed Price Model
  • You lock 100% of your fuel or energy consumption at a fixed price from Day 1
  • Pros: Absolute budget certainty. You know your exact commodity costs for the duration of the contract
  • Cons: there is a high risk that if commodity prices fall, you could pay more than the current open market rate. Moreover, customers pay extra to the supplier to hedge the supplier’s own market risk
  • Best for: customers with low-risk tolerance, requiring a high degree of budget predictability, and looking to maintain a set commodity expenditure
  • Available in regulated & deregulated energy markets
  • Administrative support requirements: medium
  • Budget risk potential: relatively low.
Variable (Spot or Indexed) Model
Variable (Spot or Indexed) Model
  • Your fuel or energy prices are tied 100% to the market price; no hedging is implemented
  • Pros: more flexibility by allowing you to capitalize on market price fluctuations
  • Cons: no commodity budget predictability, with customers being fully at the mercy of market fluctuations
  • Best for customers with a high-risk tolerance and a low need for price certainty during the energy contract (perhaps because they can easily pass on price increases to their own customers)
  • Available in regulated and deregulated energy markets
  • Administrative support requirements: lower
  • Budget risk potential: relatively high.
     
Variable (Spot or Indexed) Model
Flexible Price Model
  • A compromise between the fully Fixed and fully Variable models, where you purchase part of your fuel or energy at a fixed price (either as a percentage of consumption or a flat load block) and part at spot market rates
  • Pros: flexibility to take advantage of market falls while enabling a certain degree of budget certainty for some portion of the commodity demand. In addition, the block-lock structure allows customers to take advantage of demand reductions
  • Cons: requires adequate ongoing bandwidth to manage commodity pricing as the market moves
  • Best for customers who want to lessen market risk but still retain some price predictability
  • Available only in deregulated energy markets
  • Administrative support requirements: higher
  • Budget risk potential: most manageable.
     

How it Works. Physical vs Financial Hedging 

Our range of Price Risk Management options for fuel and energy includes all major financially settled products globally, and many less common hedging products and indices locally. Credit lines are provided separately for Physical Hedging (embedded in your World Kinect physical supply) and Financial Hedging (for commodities not supplied by World Kinect).
 

Physical Hedging

Physical Hedging (embedded in physical supply) commonly incorporates: Fixed Forward Pricing (FFP).

Instead of being exposed to spot market movements between now and future consumption, the FFP option allows you to fix a fuel or energy price at a certain level for a specific period (typically for 1-3 years).

Key benefits:

  • Removes uncertainty of commodity cost, assisting the budgeting process
  • Provides flexibility of volume delivery across multiple locations
  • Includes option of rolling volume forward (subject to price agreement)
  • Full price upside protection
  • Reduced burden/greater assurance of supply
  • Easy to administer
  • Can avoid margin call risk

Obligation:

  • Take or pay will apply. Once committed to lift a specific volume, you must either take the agreed volume, or cover the cost of the product.
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Financial Hedging

Financial Hedging (separate from physical supply) commonly includes Swaps, Collars, and the popular Capped Supply Pricing option.

The capped pricing derivative protects your business from fluctuating commodity prices, whilst providing the flexibility of benefit from falling prices.

Key benefits:

  • Known maximum price of your commodity purchases – price increase protection
  • No minimum price required - benefit from lower prices
  • Capped price can apply to volume delivered across multiple locations
  • Financial settlement of derivatives offsets price movements on physical commodity

 

Obligation:

  • All Capped Maximum Pricing contracts are subject to a pre-agreed and pre-approved volume fee.
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How can we help you?

Get in touch with us.