Barrier Fixed Price Agreements
Do you want to set a barrier price in a rising/contango market.
How it works
- When you buy a physical barrier fixed price agreement, you will obtain a discount on the fixed price compared to the market fixed price, but if market prices rise more than a certain point you will only be protected to that point.
Example
- You buy 5,000 metric tons of New York 380cst bunker fuel per month in the fourth quarter 2011 from Chemoil at a fixed price of $330/mt with a barrier of $350/mt. The fixed price of $330mt represents a $10 discount to the market price for fixed forward price agreement which is valued at $340/mt.
- In the 1st month the New York 380 CST month average is $325. You pay the fixed price $330.
In the 2nd month the New York 380 CST month average is $340. You pay the fixed price $330.
In the 3rd month the New York 380 CST month average is $365. You pay the fixed price $330 + a premium of $15/mt (365-350) = $345/mt.
