High-volume fuel buyers like construction companies, government agencies, and retailers have two options to choose from when it comes to purchasing wholesale fuel – they can either pay spot prices (rack pricing), which doesn’t require any prior commitments; or they can sign a contract with a predetermined wholesale price.
Purchasing Wholesale Fuel on A Contract Basis
Wholesale fuel purchase contracts are signed between a purchaser and wholesaler, where the price of the fuel being sold is agreed upon ahead of time by both parties. It ensures that the purchaser has access to a stable, steady supply without being subject to market risks. The term period of such contracts tends to vary between 5 – 12 years at a time.
In such contracts, prices are linked to indexes like Platts, JOC, or OPIS. A certain differential may be added as well. The contract price fluctuations are directly linked to the changes of the index. In some instances, the wholesale price may be fixed directly after thorough negotiations. Details such as quantity are settled in the terms and conditions of the contract. Signing the contract ensures that the buyer is given the first priority, should supply lines see any interruptions. The contracted quantity will first be delivered to customers with a valid contract.
Most wholesale fuel contracts generally involve branded, high-quality fuels. For instance, if a fuel retailer tries to purchase branded fuel at wholesale rates, they’re required to become an authorized branded retailer first, which means they have to comply with specific property appearance and branding requirements.
Some contracts also take credit card costs borne by the retailer into consideration. Since most fuel transactions involve credit card expenses in some form, these costs are either passed onto the customer or absorbed by the suppliers/wholesalers themselves. Branded suppliers may introduce additional fees into the contract as well.
Purchasing Wholesale Fuel at Spot Prices
Contracts are not the only way to go – wholesalers may also purchase wholesale fuel at spot prices. ‘Spot’ prices are called so because the prices used are the prevailing market rates. The purchased quantity may be delivered either in the near future or immediately.
Purchasing wholesale fuel at spot prices does not come with any branding obligations or requirements for retailers. However, suppliers will always prioritize their contracted customers first in the event of supply chain disruptions. Lacking a contract leaves retailers vulnerable to low inventory troubles. Any excess fuel left over may be sold by wholesale suppliers at or near market prices, preventing retailers from negotiating for better discounts to cut costs. Spot prices are also risky for the company since it cannot accurately predict gas expenses going ahead.
FNF Petroleum offers premium-grade products with top-quality service near and in Missouri. Should you need a reliable wholesale fuel supplier, reach out to us today. We’re always available to answer your queries regarding our terms and conditions for spot and contract purchases. You can find out more regarding our services on our About Us webpage. If you’d like to send us an email, visit our Contact Us page to find more details.