Logistics Series – Blog 7 – How the COVID-19 Outbreak Has Affected the Marine Fuel Market. Is Now the Right Time to Hedge?
We are currently living through unprecedented times. One of the most scary/frustrating components to a global event like the COVID-19 outbreak are the uncertainties that accompany it. When the world is unsure how life will be one week, one month, three months or even a year from now, the natural reaction is to start putting plans in motion to help combat potential issues associated with the disruption. The key though, is to still be strategic in that approach and not work outside of the box just for the sake of trying something different.
For a lot of companies who spend good money on marine fuel, locking in a price for either a 3 or 6 month stretch, could be a great way to guarantee some stability in their cost moving forward. If there is a shortage of the higher quality marine fuel or if the global economy expands its operations and the need for that fuel could surge even further, the cost would most likely go up as well. So when companies were given the chance to hedge, it was considered a wise move to engage in that fixed fuel contract.
As it turns out, the cost of oil has significantly decreased since January 1st. A roughly 60% reduction in cost per barrel on crude oil has some companies trying their best to rework their fixed contracts. In most cases, unless you are one of the largest marine fuel consumers in the world, there is virtually no chance for any re-negotiating.
The price of oil was already on the decrease but when the Coronavirus hit widespread around the world, the global economy has taken a major hit. The rapid decrease in the demand for oil and fuel has caused the price of oil to hit that 60% drop-off number and now those companies who decided to stick with the spot buying market, really have an advantage once the world begins to resume its more regularly scheduled programming.
Predictive analytics are often critical to buying or sourcing strategies. The COVID-19 outbreak was almost impossible to predict. A lot of unknowns await. Those companies who were willing to roll the dice back in January and trust in their purchasing expertise and overall knowledge of the commodity they buy, in this case marine fuel, have an advantage at the moment. The key will be to closely monitor the next several months and be ready for any sudden change to the system.