Hedging the Price of Petroleum Fuels 

A Decision Brief for the County Manager 

Fuel is one of the few major budgets lines a county cannot control through procurement alone — the market sets the price, and county fleets are among the heaviest, steadiest fuel consumers in local government. Fuel hedging is the standard, low-cost tool for taking that volatility off the table. This brief explains what it is, why it fits public entities, and what a program looks like in practice. 

What fuel hedging is 

• Hedging means establishing today the price of fuel that will be purchased and consumed later — locking in some or all your fuel cost for the current fiscal year and beyond. It is a financial transaction layered on top of physical fuel buying; the county keeps its existing suppliers and contracts. Done consistently; it is a form of risk management directly analogous to insurance. 

Key Drivers:

• Inventories: Higher than both the five-year average and expectations, creating downward pressure on prices
• Production: Increased on the week, adding additional supply pressure
• Demand: Increased as summer cooling demand grows, with natural gas serving as a key fuel source for additional electricity generation
• Exports: Increased, supporting prices as LNG demand remains elevated
• Rig Count: Increased, indicating continued investment in future supply
• Weather: Potential heat waves remain the primary upside risk as increased air conditioning demand could drive higher prices

Market Indicators:

• Hedge Favorability Index: Increased to 25.59% from 23.91%, showing improved hedging conditions
• Speculation: Increased as lower prices encouraged buyers to anticipate potential summer price increases

Forecast:
Natural gas prices remain relatively steady as strong inventories and production balance against rising summer demand and higher exports. Unexpected heat waves could create upward price pressure.