understanding the petroleum market

Opportunities exist to capture fuel acquisition cost-savings, but do you know what they are?

By Brian L. Milne, Contributing Editor

Downstream fuel buyers face unprecedentedchallenges in high levels of priceand supply volatility with their fuel buying

Opportunities to capture acquisition cost-savings and maximize profit can be lost seconds in up-and-down markets. More than ever, the key to success is accessing critical market data, news and analysis in real-time. You need the best information as it becomes available so you can make quick, accurate assessments of your product needs and then act decisively in fuel transactions that protect and fatten your margin.

Ongoing changes in federal regulations have made the downstream marketplace harder to forecast. Government mandates have and will continue to expand the demand for ethanol in new markets, while the transition to ultra-low-sulfur diesel fuel creates uncertainty as fuel buyers apply new rules to their fuel procurement strategies.

Speculative investors continue to pour funds into energy markets because of geopolitical turmoil and terrorism, hurricanes and the state of the economy. These events converge to drive price volatility in key futures contracts used to index wholesale spot prices in physical trading. As posted rack prices update more often, fuel buyers are now more dependent on knowing what the intraday price changes are in their regional spot markets. A single missed move in today’s market could cost you your margin.

How to Make Smarter Decisions

  • Monitor current news and geopolitical events. A host of recent examplesdemonstrate dramatic price moves in both directions, including violence inthe Middle East, diplomatic confrontations at the U.N. and the partial shutdownof the country’s largest active oil field in Prudhoe Bay, Alaska. Less dramaticevents, such as tight supply on a regional pipeline or a key supplier exitinga market, could have an even greater impact on fuel buying decisions. Stayingon top of industry and market news, and its impact on your bottom line, iscritical new business environment.
  • Monitor and evaluate the spot prices markets. What happens in today’s marketdirectly correlates with the next posted price at the rack. Knowing its drivingfactors will provide a indication of where postings are and how much theymay change. Staying on top of the spot market will also alert you to possibleintraday price changes at the rack.
  • Take stock of your business requirements, financial position, buying philosophiesand risk tolerance, and develop the appropriate product acquisition strategy.Develop several supplier relationships at more than one terminal to ensureproduct availability, but be sure to meet your allocation requirements.
  • Study price in your markets for at least three years. Understand trends,seasonal influences and other local supply-demand factors that impact price.Then negotiate a supply agreement.
  • Look to real-time market intelligence tools as an essential part of yourfuel purchasing decisions. Track for spot and rack pricing, market analysisand news, and research price history. Remember, the longer it takes your businessto make a purchasing decision, the more it might cost.

Analysis tools exist to give fuel buyers real-time, comprehensive market information. DTN Six Factors provides a concise system that tells what kind of market exists instead of guessing where the market is going. Because of this unique focus, fuel buyers can better select a risk management strategy to employ and significantly improve fuel-buying decisions. Also, DTN Fuel Buyer offers a comprehensive dashboard for supplier pricing at the rack, spot prices for markets across the country, best buy differentials, price analysis tools and in-depth market analysis.

With access to real-time information, fuel buyers successfully gain confidence and push their business towards maximum profitability no matter what comes along. Start making smarter fuel purchasing decisions today.

Brian L. Milne is a product manager for DTN Energy in has been a journalistand editor for 12 years, focusing on the energy markets for 10 of those years.He began covering the natural gas markets in 1996 and expanded to include theelectricity industry during the move to deregulated markets in the late 1990s,and later, the downstream petroleum industry. He can be reached by phone at(609) 371-3328 or e-mail at brian.milne@dtn.com

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