Tuesday 10 January 2017

Fix a longer supply agreement – Y Report

Fix a longer supply agreement – Y Report

Businesses are being advised to consider fixing a much longer supply agreement than what they are used to.

Dorian Lucas, Energy Trader at Inenco said: “Over the last few years, a 12-month contract would have done you very, very well, constantly fixing at the bottom of the market.

“However, looking at a more volatile commodity market going forward, we could potentially see further and further increases. So, if you’re fixing on a 12-month, all you’re going to do is potentially commit to a yearly increase going forward. If you extend and fix for a longer duration, you’re going to get increased price certainty in a rising market so you’re potentially going to beat the market moving forward.”

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For businesses on flexible contracts, Mr Lucas adds the message is the same with regards to supply agreements.

He said: “Make sure you’re extending it out as far as you possibly can, 2020 and beyond is ideal. Again, even if you’re on a supply agreement, the prices you’re fixing out or trading at today aren’t necessarily fixed for life. You’ve always got the option to re-expose that back to the market should we see some downside in the future, which is perfectly plausible.

“However at the moment, with the uncertainty over Brexit, uncertainty over where oil prices are going, it’s looking very, very bullish with prices potentially increasing moving forward and the best thing you can do is get in the supply agreement in place and get protecting prices where they are.”

Written by

Bruna Pinhoni

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