Caps & Collars

Caps and collars are hedging strategies designed to help protect customers from rising fuel oil prices. A cap gives customers the right to purchase fuel oil at a ceiling price when the market price is higher and at the market price when it is lower. Caps are most beneficial to customers who wish to limit their exposure to high prices, but take full advantage of lower prices when the fuel oil market declines.

A collar likewise gives customers the right to purchase fuel oil at a ceiling price when the market is higher and at the market price when it is lower, but with a lower limit of the floor price. This allows customers to limit exposure to upward price movements at a lower cost than a cap. Hess also offers "costless collars", whereby the floor price point pays for the ceiling protection. Collars are best for customers who wish to limit exposure to high market prices, but at a lower cost than through caps.

How caps work:

• You contract for exact volumes (minimum 10,000 Bbls or 42,000 gallons per month)
• Your price of oil is the lower of the cap or the market price
• There is a one-time charge based upon the ceiling price you set

Benefits of a cap:

• Limits exposure in rising markets
• Provides opportunity to take advantage of lower prices (regardless of how low)
• Meet budget objectives while maintaining participation in downward markets

How collars work:

• You contract for exact volumes (minimum 10,000 Bbls or 42,000 gallons per month)
• Your oil price will never exceed the cap or drop below the floor. If the price falls between the cap and the floor, you pay the market price
• There is a one-time charge (except in the case of a "costless collar") based upon the ceiling and floor price you set

Benefits of a collar:

• Limits exposure in rising markets
• Allows some participation in a downward market (above the floor price)
• Meet budget objectives at a lower cost than a cap in exchange by accepting a floor price

Cap and Collar Comparison