OCM Fuel Risk Management
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- Tracy Barber
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1 OCM Fuel Risk Management
2 Our Mission Provide clients with innovative and flexible fuel risk management solutions optimizing bunker procurement and creating cost savings
3 Capabilities - Financial hedges in all oil products - - Swap - - Option strategies - Physical supply contracts including - - FFP in a vast amount of ports - - FFP Collar - - FFP Limit - - Capped Forward Price (CFP) All hedging tools can be customized to suit clients needs.
4 OCM - Fuel Risk Management FFP Fixed Forward Price CFP Capped Forward Price OCM Derivatives Trading FFP-Collar Capped Forward Price with limited down side opportunity FFP-Limit Fixed Forward Price with limited upside
5 FFP Fixed Forward Price
6 FFP Fixed Forward Price Description FFP Agreements allow the customer to lock in the price they pay for bunkers in a specific time frame. Mechanism You buy 5,000 metric tons of IFO 380cst in Singapore per month of the first quarter of 2012 from OCM at USD650.00/mt. First month (Jan 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD660.00/mt. You pay OCM USD650.00/mt and save USD10.00/mt Second month (Feb 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD645.00/mt. You pay OCM the fixed price of USD650.00/mt. Opportunity loss of USD5.00/mt Third month (Mar 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD662.00/mt. You pay OCM USD650.00/mt and save USD12.00/mt Advantages Protection from spot price increases Guaranteed future fuel supply Guaranteed price Settlement through normal invoicing after each delivery at normal credit terms Disadvantages Lost opportunity if spot price falls
7 FFP - Exit Fixed Forward Price including exit agreement USD 20 per Mt
8 Description Mechanism FFP - Exit Fixed Forward Price including exit agreement FFP Agreements allow the customer to lock in the price they pay for bunkers in a specific time frame. This FFP agreement includes an exit clause where the customer can choose to exit the agreement and pay the difference between fixed price and spot price and then pay spot price going forward. You buy 5,000 metric tons of IFO 380cst in Singapore per month of the first quarter of 2012 from OCM at USD650.00/mt, with exit agreement at USD630.00/mt. First month (Jan 2012): IFO 380cst in Singapore spot price at time of delivery to USD660.00/mt. You pay OCM USD650.00/mt and save USD10.00/mt Second month (Feb 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD630.00/mt. You exit the agreement. You pay OCM the difference between the fixed price and the exit price USD USD = USD20.00/mt for the remaining volume of the contract. Third month (Mar 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD640.00/mt. You pay as per the spot price USD640.00/mt as you have exited the agreement in the second month. Advantages Protection from spot price increases Guaranteed future fuel supply Guaranteed price Settlement through normal invoicing after each delivery at normal credit terms Able to exit the agreement to take advantage of spot price downward movements. Disadvantages If spot price increases after you exit, you will no longer be protected. However you have the opportunity to enter a new agreement at lower levels.
9 FFP - Limit Fixed Forward Price with limited upside
10 FFP - Limit Description Mechanism Fixed Forward Price with limited upside FFP - Limit Agreements allow the customer to lock in the price they pay for bunkers in a specific time frame at a discount to a normal FFP. However, the benefit to the upside is limited. This allows the customer to take advantage of the lower forward prices and the current high premiums in the options market. You buy 5,000 metric tons of IFO 380cst in Singapore per month of the first quarter of 2012 from OCM at USD with a limit at USD The current spot price is USD650.00/mt. First month (Jan 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD665.00/mt (Past the limit at $660). You pay OCM USD620.00/mt + USD5.00 ( ) = USD You save USD40.00/mt Second month (Feb 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD650.00/mt. (Below at limit at $660) You pay OCM USD620.00/mt and save USD30.00/mt Third month (Mar 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD615.00/mt. You pay OCM USD620.00/mt. Opportunity loss of USD5.00/mt Advantages Obtain a discount on the fixed price compared to the normal FFP Some protection against rising markets Settlement through normal invoicing after each delivery at normal credit terms When prices increase, you will always save money in comparison to the spot price. Disadvantages Opportunity costs if market price falls 100% protection against rising markets not guaranteed
11 CFP Capped Forward Price + Premium
12 CFP Capped Forward Price Description CFP Agreements allow the customer to cap the price they pay for bunkers in a specific time frame. This benefit requires a non refundable upfront premium to be paid when you enter the agreement. If the spot price is below the maximum price, you pay the spot price over the period of the agreement. If the spot price is above the maximum price, you only pay the maximum price over the period of the agreement. Mechanism You buy 5,000 metric tons of IFO 380cst in Singapore per month of the first quarter of 2012 from OCM at a capped price of USD660.00/mt. Premium of for the upside protection of USD30/mt to be paid when entering the agreement. First month (Jan 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD750.00/mt. You pay OCM USD660.00/mt and save USD90.00/mt. You have paid an upfront premium of USD30.00/mt, therefore net savings will be USD60.00/mt Second month (Feb 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD640.00/mt. You pay OCM the spot price at USD640.00/mt. You have paid an upfront premium of USD30.00/mt, therefore the total price is USD670.00/mt Third month (Mar 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD700.00/mt. You pay OCM USD660.00/mt and save USD40.00/mt. You have paid an upfront premium of USD30.00/mt, therefore net savings will be USD10.00/mt. Advantages Protection from spot price increases Full benefit from falling spot prices Guaranteed future fuel supply Guaranteed certainty that price will be lower or equal the agreed price level Settlement through normal invoicing after each delivery at normal credit terms Disadvantages Upfront premium
13 FFP - Collar Capped Forward Price with limited downside opportunity
14 FFP - Collar Capped Forward Price with limited downside opportunity Description Mechanism FFP Collar is a Capped Forward Price with limited downside opportunity. This agreement allows the customer to lock in the price they pay for bunkers in a specific time frame but leave the opportunity open to achieve some limited cost savings should prices decline. If the spot price is between the maximum and minimum price, you pay the spot price. If the spot price is above the maximum price, you only pay the agreed maximum price (cap). If the spot price is below the minimum price, you pay the agreed minimum price (floor). You buy 5,000 metric tons of IFO 380cst in Singapore per month of the first quarter of 2012 from OCM at a capped price of USD660.00/mt and a floor at USD630.00/mt (minimum price). First month (Jan 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD670.00/mt. You pay OCM USD660.00/mt and save USD10.00/mt Second month (Feb 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD650.00/mt. You pay OCM the spot price of USD650.00/mt Third month (Mar 2012): IFO 380cst in Singapore spot price at time of delivery equates to USD625.00/mt. You pay OCM USD630.00/mt. Opportunity loss of USD5.00/mt Advantages Protection from spot price increases Benefit from falling spot prices until the minimum price Guaranteed future fuel supply Guaranteed certainty that price will be lower or equal the agreed price level Settlement through normal invoicing after each delivery at normal credit terms No upfront premium as this structure is calculated at zero-cost Disadvantages Opportunity costs if market price falls below the floor
15 OCM Fuel Risk Management Singapore London Millenia Tower The Old Trading House 1 Temasek Avenue # Northburgh Steet Singapore London EC1V 0JR Phone Phone Rachel Lee Jan Egtved Knudsen londonsales@oceanconnectmarine.com
People with energy. Adding value right across the supply chain
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