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Buying Wholesale Fuel: Contract Vs. Spot

Monday, July 13th, 2015

When buying wholesale fuel, retailers, government agencies, construction companies and other large volume users have a couple of options. These buyers can purchase wholesale fuel by contract which sets a price and a steady supply or they can buy on “spot”, also known as rack pricing where there is no commitment by either party.

Buying wholesale fuel on contract

Wholesale contracts are agreements between a wholesaler and a purchaser concerning the purchase of fuel. This contract guarantees the  purchaser will have a steady supply and it sets the price to be paid. Term length of fuel contracts can vary a great deal. Some can be for as short as 5 years while others can stretch to 12 years or more.

The price is usually tied to an index like OPIS, JOC or Platts, with a differential added. If the index goes up, the contract price goes up. If the index goes down, the price goes down also. In some cases, the price is fixed and negotiated. The number of gallons needed is also set out in the contract. By establishing this agreement, the buyer can be assured that if supply gets interrupted, the contracted amounts are delivered first.

Many wholesale contracts are tied to branded fuels. If a retailer wants to buy a branded wholesale fuel for instance, they need to become a branded retailer. That conversion means meeting branding requirements and property appearance standards.

Buying on contract can also include credit card processing services for the fuel retailer. There are credit card fees included in those transactions. Some branded gas suppliers tack on additional fees as well.

Buying wholesale fuel on spot

Purchasing wholesale fuel on spot (or rack) is the alternative to contracts. The term “spot” marketing refers to buying gas on-the-spot, and can refer to a purchase made immediately or in the very near future.

There are no branding options or obligations for retailers who purchase spot wholesale gas. However, suppliers are obligated to fulfill their contracted agreement with fuel retailers first. Without a contract, retailers run the risk of their supplies getting too low. If there is any gas left over, wholesale suppliers will offer the excess usually set at market price. The retailers that purchase this wholesale gas on spot do not have any opportunity for negotiation on price. Also, buying on spot makes it difficult to accurately predict fuel costs.

At Kendrick Oil we have been providing quality products with quality service for over 60 years. If you are looking for a wholesale fuel supplier, give us a call today at (800) 299-3991 . We are happy to answer any questions you might have about our contracts and buying gas on spot. You can also reach us via email on the Contact Us page. You can learn more about Kendrick Oil on our About Us page