Uncertainty is certain: Unpredictable fuel costs mean companies plan for the worst - Kansas City Business Journal:

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"You just can't plan for said Mateer, operations manager for , a company that suppliez fuel for aircraft at the Executive Airporr inJohnson County. "You just nevere know." Mateer buys more than 500,000 gallonss of fuel each But when it comes to predicting how much that will cost in the year to Mateer said he takesa worst-cased scenario and goes from there. Fuel prices changwe almost every week. Unpredictable weather, international increasing demand from the United States and limited refining capacity and fluctuating supplies all can affecytfuel prices. Trying to determine how those factorsw will change and interact for an entirs year is a guessing gameat best.
Most companiezs resolve to budget an additional 10 percentr more than their totap average fuel costs for the previous That 10 percent accounts for uncertainty and the generalp upward trend of crude oil which will averagearound $70 a barrel in 2007, according to the federao government's . Global demand for oil is expectedf to increasefrom 1.2 million barrels a day in 2006 to 1.7 milliojn barrels a day in primarily because of increased demanfd from the United States and China, accordingg to the EIA's Short-Term Energy Outlook, published in That demand will be slightly offseyt by new projects in the Caspian region, Africa and Brazil, which are expected to add aboug 0.
9 million barrels a day of new production in 2007. However, the outlookj said prices will remain tight because the globak capacity for surplus oil production is Mateer said he monitors fuel pricesevery day. If prices he tries to fill the company's storage tanke as soon as possible. If prices decrease, he waits. In eithetr situation, the cost of fuel is passed on toaircraft users. Many companies pass along increaseds costs. Trucking companies and privat shuttle services have implemented surcharges to make up for greater fuel prices.
Based on a percentage of tota lfuel costs, these additional charges temped the volatility of the fuel market and allow companiess to base their annual fuel budget on the number of gallons they plan to use, whic h is often more predictable than the price of Limousine and airport shuttle services at charge clients 3 percenrt to 10 percent of the total cost of fuel when gasolinr costs $2.40 a gallon or more, CEO Bill George said. But even with the company feels the effect ofincreasedd prices. "None of it compensates fully for what we pay additionallygin gas," he said. "I t helps, but none of it gets it back to Trucking companies, such as in St.
also use surcharges on contracted shipments. Increased fuel costs affecgt Mid-Cities most during "deadhead" mileas -- miles used to drive the truck from a finishecd shipment to anew one. Thos costs can't be recovered through a surcharger because there is no clientto bill, CEO Bob Whetsello said. Rather than budget for fuel for anentirwe year, Whetsell said his staff meets every Monday morning to revie the five different companies that supply Mid-Citiew with fuel. Then they go with the lowest one, he "It's something that is ongoing," he "You budget high, and if you hit it, and if not, you have a savings.
" though, Whetsell said he has consideredanother option: In the uncertain fuel hedging allows companies to buy fuel in bulk and guards against price increases. It also allowe the company to set a solid But hedging is a gamble because fuel pricexs may drop below the original purchase A company thatbought 100,000 gallons of unleaded gasoline in mid-August at the nationall average of $2.997 would have spenty about $40,000 more than the same amount of fuel woulx have cost in mid-September. Most small companieas can't afford to take that Whetsell said.
That's why Mid-Cities nevetr considered it until fuel priced increased substantially this With pricestemporarily dropping, though, the company doesn't plan to hedge anytime "It's a gamble, and that's why it's on the back he said. "If (prices) stary going up again, we'll get back togethee and reconsider hedging." Tom Kretsinger Jr., COO of in said the company hedged fuel one time severakl years ago and lost money on the Heprefers stable, long-termm strategies that improve truck fuel efficiencyg and limit deadhead miles, he said. ACT uses a computer prograk to determine the cheapest fuel routed forits drivers.
The company also uses auxiliar ypower units, which are cheaper than burnin g fuel, to heat and cool trucks duringg idle time, he said. Additionally, some companies may try to temperr costs bybuying "wet" fuel that is delivered to the company's storages tanks and "paper" fuel, whichn is placed on the New York Mercantile said Bryan Beaver, CEO of in Overlan d Park. Wet fuel is more accessible for use, but paper fuel doesn'tt need to be shipped or There is no secrert or definite way to budget forfuel prices, Beaver As a fuel marketet that buys fuel from refineries and sells it to gas stationss throughout the Midwest, CarterEnergy passes on the cost of pricew increases.
But determining what will influenceprices isn'ty as complex as most people make it out to be, Beavetr said. What drives prices more than anythinf else is simple supplyand demand, he said. "Whaft you find if you delve down into the price is thatthere isn't anything sexy about it," he said. "It's a very fundamentalk nuts-and-bolts industry."