Are You Sure You Are Buying Fuel At A Competitive Price?
Do you sometimes wonder what your supplier is NOT telling you that may or may not give you a competitive edge?
Our values at Desert Fuels are to blow open the closed-doors of the fuel industry. We’ll give you the industry secrets that will not make our competitors happy – but will make you a smarter buyer.
That’s right, we tell you what the industry doesn’t want you to know. And we are happy to do it!
One of the ways we all get smarter is by understanding the fuel purchasing contract options that are available to both you and your supplier.
The best way to know that you are purchasing at a fair and competitive price is to contract a price based on a published third-party industry standard.
The Price of Milk – And Understanding OPIS
Imagine if you were to receive an email each day that published the price of a gallon of milk at every grocery store in your town. You would be able to discover who has the highest price and who has the lowest price as well as the average price of milk on any given day.
If that number were discovered, published and recorded by a third party, then a bulk milk buyer would have transparency into the milk market and have a basis to negotiate a milk purchasing contract with a supplier.
Let’s say that a price discovery and publishing company called “MOO” was able to find out the price for each gallon of milk in your city at every story and publish it every day. A wholesale milk buyer could theoretically design a contract to purchase 500 gallons of milk based on the average price of milk on any given day. In fact, a multiple number of contracts could be agreed upon based on a daily average, high, or low price of milk.
A contract for milk could look something like this: “500 gallons Vitamin D Whole Milk – MOO | Phoenix, Contract AVG, Day Ahead, minus $.17”.
“MOO” is the price discovery and publishing company. “Phoenix” is the city where the prices were discovered and the geographical basis for the contract. “Contract AVG” is the average price of milk in Phoenix published at a specific time during the day. “Day Ahead” means that the contract is based on the previous day price. And “minus $.17” means that the price of your wholesale milk purchase is 17 cents less per gallon than the average price of milk the day before. If the average price of milk is $2.39 on June 1, then your price on June 2 would be $2.22 per gallon.
Insight and Transparency into the Fuel Market
A service like “MOO” would make the private information of the milk industry available to the public and any milk buyer would have insight into a much more transparent market.
OPIS (Oil Price Information Service) is to the fuel industry what MOO would be to the dairy industry. OPIS makes public the private information of the fuel industry. OPIS is a third-party service provider that discovers and publishes pricing at fuel terminals by all the major refiners and suppliers in each city where fuel is sold at the rack.
Every day, OPIS discovers wholesale terminal prices from hundreds of sources. Those prices are published and form the basis and standard for thousands of fuel contracts. Contracts based on these benchmarks move as the market moves, giving fuel buyers insight into the market and the assurance that they are always buying at a fair and competitive price regardless of sways in the market. With a pricing benchmark that moves with the market you should be able to see your price move each day and see that your price on any given day is not solely based on what your supplier thinks it should be or wants the price to be.
Most contracts are based on a “benchmark” or a “standard” such as “OPIS | DALLAS, Contract AVG, Day Ahead”, and a “differential” which is the plus or minus amount from that benchmark (-0.04 or +0.13 cents, for example).
Negotiating an OPIS-based contract
When you are ready to enter into a contract with your supplier, start with some good questions.
- Ask your supplier what benchmarks are historically the most competitive in your market?
- Ask what are the benchmarks your supplier buys from in your market?
- Ask if your supplier has multiple contracts with the major oil companies and all the major refineries in your market?
- Make sure the supplier you are contracting with truly cares about what is best for their customers and won’t just try to make a quick buck and then run away.
- Make sure your supplier won’t disappear after the contract is signed. Can you get a hold of them 24/7 without talking to a machine?
- More on the Pros and Cons of a Fuel Contract
The Desert Fuels Difference
A contract with Desert Fuels will ensure that you have insight into the price you pay every day and will give you the confidence that you are always buying at a fair and competitive price that moves with the market.
Desert Fuels has positioned itself to have an almost endless supply of fuel. Read more about the Desert Fuels competitive advantage – our phenomenal buying power, why we are better than any other fuel supplier, and why we are chosen by hundreds of companies, municipalities, c-stores, and more. Our pricing methodology is simply innovative.
“Fuel Contracts and Pricing 101” is how fuel is priced and sold at over 400 terminals or “racks” in the United States. Next time, we’ll cover “201 and beyond” – how fuel is priced, bought and sold in spot markets around the country. We’ll cover the NYMEX (New York Mercantile Exchange), pipelines, and more.
You won’t find this information anywhere else, but we’re different that way!
Contact your customer account manager or call 505-750-FUEL to discuss your fuel needs and contract options.