Budgetary Targets vs Volatile Fuel Prices – Case Study with HedgeStar and Blue Lacy Advisors
Minneapolis, MN | December 14, 2022 | By: HedgeStar & Blue Lacy Advisors, LLC
Overall Background of case study:
Our client is a major metropolitan transportation authority (the “Authority”) that owns and operates a fleet of buses, subways, commuter rails and other forms of mass transit. The Authority consumes more than 1.6 million gallons of diesel fuel a month with total fuel expense comprising 20% of its budget for materials and supplies. Diesel was a mercurial commodity with annualized volatility ranging from 50-60%. Thus, the Authority was threatened by wild swings in fuel expense that could reach $25-30 million outside of its initial budget. Not only was fuel volatility bad for budgets, but it was bad for reputation as well.
Volatile fuel prices threatened the transit authority’s ability to meet budgetary targets every year. The price of diesel represented a substantial portion of the authority’s operating budget and varies at a magnitude and pace that far exceeded the entity’s ability to respond. They started each year at a disadvantage, with revenues from ticket sales covering less than half of their budget, resulting in thin margins and little room for uncertainty.
Steve has spent his career in strategy, risk, trading, and investment. He works with investors to source investments in opportunistic or high growth sectors, with particular interest in early-stage companies solving clearly defined problems.
He is currently a Managing Partner with Blue Lacy Advisors LLC, giving management teams and investors confidence in their decision making by supporting strategic planning and execution, risk management, commodity trading, and market analysis.
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