Fuel Management

Albuquerque Hedges Fuel Costs to Save $1.4M

May 24, 2016

Photo via Flickr/Mike Mozart.
Photo via Flickr/Mike Mozart.

The City of Albuquerque, N.M., has renewed its fuel hedging agreements to lock in lower fuel prices for the year ahead that's expected to save the city $1.4 million, reports KRQE.

The city will spend $1.63 per gallon for unleaded and $1.47 per gallon for diesel under the terms of the hedging contracts that start in July. The hedging investments would offset the city's bulk fuel purchases.

The city will continue hedging fuel, even though the strategy didn't work out for the 2015-2016 fiscal budget year, when the city's vehicles used 5.7 million gallons for the city's 3,916 vehicles. The city paid $2.77 per gallon for unleaded and $2.84 for diesel, which was about $1 more per gallon that what retail customers paid.

Comments

  1. 1. Greg Speas [ May 25, 2016 @ 02:14PM ]

    How can they save 1.4 million when they pay more than retail? Even if they predicted fuel prices would rise above their locked in pricing during the 2016 - 2017 fiscal budget year to save 1.4 million, it would take more than five years to make up what they lost during the 2015 - 2016 fiscal budget year ( 5.7 million gallons X $1.00). The fuel companies have teams of analyst that set predictive price agreements and they are not going to lose their profit. Plus, I don't think it's sensible to hedge (gamble) with the taxpayers money. I'll stick to the lowest rack cost plus profit margin basis.

  2. 2. Paul Clinton [ May 25, 2016 @ 03:01PM ]

    @Greg, Thanks for the comment! I'd encourage you to read the related article to get a better feel for hedging because it can get confusing. The hedges are financial instruments that cost fractions of dollars and are used as insurance to what the city pays at the pump.

 

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