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The board locked in last month for #4 oil at $2.48 (oil was higher then). Since oil has dropped over the past month and getting lower, we want to renegotiate the price by asking for a Blend and Extend contract. Has anyone done this before? What is your take on this?
Thanks
The Pres.
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We had a natural gas contract that at one time we thought we would extend via a blend and extend amendment to our agreement. We elected to “ride it out” rather than force ourselves into a convoluted contract. As fiduciaries, we did not want to start playing in the volatile futures market with the vagaries of the speculators who tend to drive prices. Our natural gas contract has expired and we are happy where we are.
Blend and extend is not a simple calculation. One does not take the average of the old rate and the new rate and then simply construct a “blended” rate as a number of factors must be taken into account. The remaining term, volume/quantity commitment are factored into the the extension term. Then, there is the cot of money as the fuel oil supplier has made a commitment to purchase at a certain rate. This commitment is now to be spread over the remaining months.
Sure, it is easy to look a cost $x for ten months and cost $y for twenty-two months, but is that where you want to be?
Sorry no other advice available.
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