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The city hopes to land some savings by locking in fuel at a price based on the New York Mercantile Exchange.
Monday, March 11, 2013
Roanoke is looking to lock in some savings on gasoline and biodiesel with another round of supply contracts pegged to the New York futures market.
That’s the fast-moving market where some of the world’s biggest energy and investment firms wheel and deal, betting millions on which way fuel prices are headed.
The city’s tack, though, is a lot more cautious. It is asking fuel suppliers to bid for a year’s worth of business at a fixed price, to be locked in based on the prices of fuel on the New York Mercantile Exchange on a day that the city picks.
“It means we know what we’re going to pay,” said Ken Cronin, Roanoke’s director of general services and sustainability.
It also means the city will miss paying for the usual summertime spike in gasoline prices, as well as the winter bump for diesel, which is basically the same as home heating oil. On the other hand, the city would miss out if gas prices tumble.
Cronin’s not betting on that.
“Overall, that line is continuing to go up, over time,” he said.
Right now, though, the New York Mercantile’s spot price for gasoline is down 18 cents from a year ago, while diesel prices are down 22 cents.
Under the city’s current contract, it is paying just under $3.02 a gallon for 225,000 gallons of gasoline and a bit less than $3.36 a gallon for 170,000 gallons of biodiesel.
The city is asking suppliers to bid for three months’ supply for its fleet and for Valley Metro’s buses, to carry it through the end of the current fiscal year on June 30.
It is also asking suppliers to bid for next year’s supply.
In their bids, they’ll quote a set mark-up over the New York Mercantile price and agree to let the city lock in the base New York Mercantile price on any day it wants within a 30-day period for this year’s contract and a 90-day period for next year’s.
Tracy Little, vice president for marketing at James River Petroleum, said about 35 percent of the company’s government customers lock in prices for fuel.
But the company isn’t out on a limb if prices rise.
“We hedge all of our fixed pricing deals,” she said.
The idea is that any losses the company might suffer if fuel prices rise would be offset by profits from taking a position in the futures market, in which traders buy and sell promises for future delivery of the product.
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