Commercial fuel buyers broadly choose between two approaches: buying on the spot market as needs arise, or agreeing a term contract for regular volumes. Each has a place.
Spot purchasing
Spot buying means purchasing individual loads at the prevailing price. It suits buyers with irregular demand or those testing a new supplier.
- Advantages: flexibility; no volume commitment.
- Disadvantages: less supply priority in tight markets; harder budgeting.
Term contracts
A term contract commits to a volume over a period — often six to twelve months — with an agreed pricing formula and delivery schedule.
- Advantages: supply priority; transparent pricing; simpler budgeting and auditing.
- Disadvantages: volume commitments; less ability to switch suppliers quickly.
The hybrid approach
Many large users secure their predictable base load under a term contract and buy peaks or project volumes on the spot market. This balances security with flexibility.
What to agree in a term contract
- Volumes, tolerances and delivery locations
- The pricing formula and its reference price
- Quality specification and documentation
- Payment terms and credit arrangements
- Force majeure and disruption procedures
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Published by African Energy Enterprises. This article is general information and does not constitute legal, tax or financial advice. Regulated prices and rules change; confirm current figures with the relevant authority.
