The Chicago Department of Fleet Management is benefiting from forward contracts because the forward contracts set the city’s purchase price for unleaded and diesel fuel before the price of oil and gas shot through the roof. Gas prices have shot up roughly 37 cents in the last two weeks alone.
Forward gas purchase contracts are part of the City’s fleet management efforts to protect their budgets against rising gas prices. The higher the gas prices go, the better the decision to lock in prices looks.
Now that gas prices are north of $4 in many parts of the US, fleet management must be quite relieved to be paying so much less than everybody else. For March through June, the city locked in 50 percent of unleaded gas at $3.242 per gallon and diesel at $3.52. The city also has contracts for July through December to buy 25 percent of its unleaded gas at $3.028 per gallon and diesel at $3.35 — the same prices paid in January and February under identical deals. Today’s average gas prices in Illinois are currently at $3.666 for regular unleaded and $3.936 for diesel, according to AAA.
Based on current projections that gas prices are going to continue rising over the next 6 months, the Chicago fleet may save up to $1.3 million on fuel purchases in 2011. If prices were to hit $4 a gallon on April 1 and not fall back through year end, the savings would top $1.8 million, or 5 percent of the total fuel bill, had the city not locked in prices.
Source: Chicago News Co-Op