As uncertainty and volatility run rampant, well planned hedging strategies can help fuel retailers manage their margins and increase their company’s value.
When 2026 began, WTI crude oil futures were sitting just under $60. When Oil & Energy was putting its 2026 Annual Hedging Survey together in mid-March, those same futures were opening and closing between $96 and $98, and regularly hitting intraday highs over $100. At this time there is no indication of when the Strait of Hormuz will be safe for tankers, how much damage will have been done to Middle East oil production infrastructure, or how long it will take to get the shuttered or slowed-down production back to speed.
In the midst of uncertainty, the hedging experts who participated in our survey repeated similar words of reassurance. Rich Larkin of Hedge Solutions said, “We believe there is a lot of opportunity in helping our clients manage their margins and actually taking advantage of the volatility in the oil price.” Mark Bloom of Angus Energy added, “Hedging, by definition, is meant to swap uncertainty for certainty. If done well-enough, it usually accomplishes its goals.” And Mark Skaparas of Aletheia Consulting Group summed it up with, “Hedging increases the probability of hitting margins, staying in business and increasing the value of your company.”
This past heating season ended with a welcome stretch of cold weather and heating degree days above the 30-year normal. As liquid fuel providers start strategizing for next winter, advice from these hedging professionals could help level off some of the volatility – and anxiety.
As always, our gratitude to this year’s participants: Mark Skaparas, Aletheia Consulting Group; Mark Bloom, Angus Energy; and Rich Larkin, Hedge Solutions.
1. As I ask every year, what was the biggest surprise of the past year around the oil markets and what about the markets did you forecast correctly?
ALETHEIA: Similar to last year, equities markets continued the bull market advance and yet crude was hanging around in the $50 range before the Middle East conflict. This disconnect between strong equities and struggling oil prices made little sense if the stock market was performing as well as it seemed.
ANGUS ENERGY: The biggest surprise was that the U.S. and Israel fully followed through on addressing the challenges to a peaceful world that the Iranian government represented. The willingness of the world – not without some kicking and screaming – to recognize that some pain now is well worth it if we can create a better world for our kids and their kids. We don’t do any forecasting.
HEDGE SOLUTIONS: The obvious here would be the US war with Iran. Hard to see that coming. The weather has been a nice surprise also. We don’t forecast oil prices. I’ve talked and written about basis risk quite a bit and the issues around the ULSHO supply if weather got cold. There were significant supply issues in the heating oil markets throughout February.
2. All indicators had anticipated low fuel costs for 2026 and 2027, and then the U.S. and Israel hit Iran. How does the volatility and anticipated rising costs affect your hedging strategies?
ANGUS ENERGY: The low fuel costs were premised upon some somewhat fragile assumptions that neglected to consider that “excess supply” would not include oil sitting on ships out at sea (Russian crude oil), or that the weather for the second winter in a row would be colder than average, or that a weak U.S. dollar would be supportive of oil prices. The spike in both price and volatility was 100 percent related to the military action against Iran, but let’s not forget that for the 6 weeks leading up to the action there were various basis blowouts separating spot/rack prices from the prices of the Merc futures contracts. THAT is something that can impact hedging strategies.
HEDGE SOLUTIONS: Our clients were hedged on their programs to deal with both price risk and basis risk. We spent a lot of time reminding them about the importance of lifting wet barrels ratably. We also had supply contracts in place that worked out really well in dealing with the basis issues.
ALETHEIA: The volatility caused by the Iran/US/Israel conflict pushed hedging premiums to levels we haven’t seen in 10+ years. The risk reward of the cost versus the chance of the price moving that much has become front and center on planning discussions.
3. In general, what benefits does hedging offer fuel retailers when facing great uncertainty?
HEDGE SOLUTIONS: We have become more engaged in the purchasing and hedging side of their rack to retail gallons that we call Short Term Hedging. We believe there is a lot of opportunity in helping our clients manage their margins and actually taking advantage of the volatility in the oil price.
ALETHEIA: Hedging increases the probability of hitting margins, staying in business, and increasing the value of your company.
ANGUS ENERGY: Hedging, by definition, is meant to swap uncertainty for certainty.
If done well-enough, it usually accomplishes its goals. When researched and done really well, it accomplishes even more. Keep in mind that “hedging” can mean a lot of different things. If you are talking about hedging a price program (cap or fixed) the uncertainly can be two-fold: 1- keeping customers happy and not shopping around and 2- managing the margins on those customers on a program. But, there are many other – seemingly smaller – items that should potentially be hedged (weather/HDDs, basis, product spreads, etc.). It takes a conversation and an openness to do things differently in a world that has changed.
4. The current volatility in oil prices is obviously due to the Middle East conflict and may or may not subside any time soon. Given this uncertainty, does it change how you advise your clients on strategy and also how they time their offers to their customers?
ALETHEIA: The timing part of the equation should be as consistent as possible year in and year out. The price absolutely influences the strategy because it will be extremely important in determining what type of strategy to implement whether that be buying physical or paper oil.
ANGUS ENERGY: The strategy that you are either hedging or speculating has not changed in our company for over 3 decades. Along with that is the realization that at the end of each trading day, THAT is what oil is worth. Once you play games with timing or opinions of market direction, you cross the chasm from hedger to speculator. Speculating is not a bad thing, but don’t confuse it with hedging. All that said, we have incorporated several new items into our suggested strategies, but there is not a one-size-fits-all – it depends upon product mix, program offering, location, basis history, etc.
HEDGE SOLUTIONS: Absolutely. Price protection programs are an essential part of our clients offerings every year. The timing of these offerings varies by client. This is the first time in several years they have had to price the upcoming year at elevated levels. Unless next heating season’s prices drop off in the next couple of months, they will need to make tough decisions on when to launch and at what price level.
5. As a follow up to the previous question, should retailers be considering foregoing price protection offers out of the fear of encountering significant buyer’s remorse for participating in their program?
ANGUS ENERGY: I’m not sure I understand the question. Why would there be buyer’s remorse from a customer who participated in a program which capped his/her price as $3.69/gallon only to see a next-door neighbor paying $5.69/gallon for a delivery in early March? Hedging costs might be higher next winter if volatility stays the current course, but customers should be lining up to be on a program and companies who don’t offer them should expect to see more attrition than in a normal year.
HEDGE SOLUTIONS: The short answer is no. This is especially true when the program is structured as a cap, since consumers can still benefit if prices fall. In many ways it offers a “have your cake and eat it too” feature, though there is a cost for that protection. Fixed-price programs are different, however, because they introduce the possibility of buyer’s remorse if prices move lower after the price has been set.
ALETHEIA: For years I have recommended to retailers to offer pre-buy fixed for those customers who just want to get it over with and know their price now. For customers who want certainty but also want to potentially end up with better pricing later, then a budget cap is a great choice. By offering those two types of price protection offerings you now greatly reduce buyer’s remorse because you have given the customer choice. If a customer thinks the market is going up next year then opt for the pre-buy. If they think prices will go down, don’t pick any price protection program. If they want the best of both worlds pick the budget cap.
6. Retailers again were faced with significant blowouts in their basis cost this winter, some markets more than others. What strategies would you advise your clients on to mitigate this risk next year?
HEDGE SOLUTIONS: There are several approaches to managing basis risk. The critical factor is ensuring the structure of the program adequately protects against potential basis blowouts. We advise our clients accordingly and place significant emphasis on this aspect of program design.
ALETHEIA: Weather is cyclical and when we do get seasons of extreme cold weather then basis risk shows up. Companies need to remember that basis works both ways. You need to evaluate your supplier landscape geographically as well as numerically. Wet barrels can be great at mitigating basis blowout but you need to do your due diligence as to the cost and terms.
ANGUS ENERGY: There are a few strategies that can be considered. The first question might be to assess the impact of the blowout on margins and on customer feedback. If the pain was high – as I do believe it was for many – then we would suggest sitting down with us to have a conversation about the various ways and costs to add basis into a proper mix of hedging tools. Suppliers have a very tough job and adding in new pricing offerings doesn’t happen without costs – financial and personnel. Sometimes supplier protection is best, but sometimes paper protection is better and provides more flexibility. Either way, there is no one answer for all.
7. What are the “known unknowns” that are concerning you the most right now?
ALETHEIA: I would say the lack of trust on the numbers that we receive every week. Whether it is inventory reports, job numbers, inflation, etc., it all seems to be manipulated, thus distorting supply and demand. Instead of worrying about the “known unknowns,” it is so much better to instead be laser focused on your business and what you can do to make it better (more productive and more efficient).
HEDGE SOLUTIONS: The biggest unknown is how long the Middle East conflict will last and if the Strait of Hormuz will have oil flowing through anytime soon.
ANGUS ENERGY: How/when the intermonth futures spreads will come back in line with historical averages; How suppliers will be able to come out with offerings other than simple spot prices for next winter; How many companies will let sticker shock of hedging talk them out of offering programs for next winter.
8. Do you have any additional comments you’d like to make about the year ahead?
HEDGE SOLUTIONS: Admittedly I may be a bit biased, but this year highlights just how important professional purchasing and hedging guidance is to a company’s success.
ALETHEIA: As the late George Carlin famously stated “It’s a big party and you’re not invited.” Having traded equity and commodity markets for over 25 years I am convinced more than ever to the value of hedging and avoiding the poor man’s game of speculating. Unless you have been invited to the “party, ” trying to time the market is certainly not a good use of your time. Instead, focus on investing in yourself and your business. Don’t let the price of oil distract you from doing what you do best. Hedging is easy as long as you don’t get sidetracked emotionally by the sudden inexplicable price moves.
9. Is your company offering any new products or services for the 26-27 season?
HEDGE SOLUTIONS: Yes, we have upgraded our proprietary software, MarginTrak, to more efficiently monitor short-term hedging strategies. In addition, we will be launching a new program this fall focused on managing our clients’ rack-to-retail margins.
ANGUS ENERGY: We offer a slew of advisory services ranging from setting up and tracking pricing programs to supply coaching wherein we become part of your team – sometimes it just takes another set of eyes. On the hedging side of our company, we offer an array of customized price and volumetric protection and can work with you all the way down to hedging the local rack against either “flat price” or “basis, ” if that is what you need.
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Our thanks, once again, to this year’s Hedging Survey participants for their time and thoughtful responses: Mark Bloom, Chief Marketing Officer, Angus Energy (mbloom@angusenergy.com, 954-564-7500, ext. 113); Richard Larkin, President, Hedge Solutions (rich@hedgesolutions.com, 800-709-2949); and Mark Skaparas, President, Aletheia Consulting Group (mark@aletheiaconsultinggroup.com, 508-245-2518).
Aletheia Consulting Group: Aletheia Consulting Group is a price risk management firm specializing in fuel procurement and hedging. The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results.
Angus Energy: PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or to authorize someone else to trade for you, you should be aware that you could lose all or substantially all of your investment and may be liable for amounts well above your initial investment.
Hedge Solutions: The information provided in this market update is general market commentary provided solely for educational and informational purposes. The information was obtained from sources believed to be reliable, but we do not guarantee its accuracy. No statement within the update should be construed as a recommendation, solicitation or offer to buy or sell any futures or options on futures or to otherwise provide investment advice. Any use of the information provided in this update is at your own risk.
