Concept
Fuel price risk management, a specialization of both financial risk management and oil price analysis and similar to conventional risk management practice, is a continual cyclic process that includes risk assessment, risk decision making and the implementation of risk controls. It focuses primarily on when and how an organization can best hedge against exposure to fuel price volatility. It is generally referred to as "bunker hedging" in marine and shipping contexts and "fuel hedging" in aviation and trucking contexts. Fuel price risk management services are predominantly provided by specialist teams within fuel management companies, oil companies, financial institutions, utilities and trading companies. Examples include: Fuel management companies – Mercatus Energy Advisors, INTL FCStone, World Fuel Services, Onyx Capital Advisory, Global Risk Management Oil companies – Total S.A., Royal Dutch Shell, ExxonMobil, Koch Industries, BP Financial institutions – BNP Paribas, Goldman Sachs, JP Morgan, Barclays plc, Macquarie Bank, Citigroup, Morgan Stanley, Wells Fargo Utilities – RWE Supply and Trading GmbH, EdF Independent trading companies – DRW, Optiver Similar to conventional risk management practice, fuel price risk management is considered a continual cyclic process that includes the following: 1 Establishing the context current and future business environment financial position and budgets objectives and needs required fuel consumption, etc. 2 Risk assessment fuel cost calculations risk identification the organization's attitude to risk exposure analysis to fuel price fluctuations scenarios of various hedging strategies 3 Risk treatment implementation of a fuel price risk strategy 4 Monitor and review An alternative to the above described process is the following: 1 Identify, analyze and quantify the fuel related risks 2 Determine tolerance for risk and develop a fuel price risk management policy 3 Develop fuel price risk management implementation strategies 4 Establish controls and procedures 5 Initial implementation of fuel price risk management strategies 6 Monitor, analyze and reporting 7 Repeat the process on as needed basis Energy efficiency measures can be seen as real capital investments that, in addition to reducing fuel costs, reduce exposure fuel price risk.