What is Pricelock?
Pricelock is an agreement where the supplier agrees to freeze the price of an asset or service for a certain period of time. This term is most often used in the energy sector because some companies are trying to attract new clients by offering warranty that energy costs will not increase, even if the costs of these assets in the open market are increasing. In addition to energy companies, service providers such as cable companies and telephone networks sometimes offer prices. As with any long -term financial agreement, Pricelock may be or may not always be in the best interest of the supplier or buyer.
natural sources such as oil, gas and coal are sold on stock exchanges around the world; The price of these assets is largely driven by supply and demand. People tend to use more energy to heat or cool their homes during unusually cold winters or abnormally warm years. As a result, energy prices often rise in summer and winter, but fall in spring and autumn. During a period of recruitSSION, commodity prices, including energy, tend to rise because investors are flocking to buy these tangible assets rather than speculative tools such as shares or swaps of credit failure (CD). Transport companies, airlines, homeowners and school districts are among those that have to adjust budgets to match fluctuating energy prices.
Many companies offer PRICELOCK contracts with conditions from a few months to several years. Energy buyers who use these arrangements are more easily able to budget for a long time, because energy costs are more solid than variable obligations. On the other hand, energy companies can also create more accurate budget forecasts when a large number of clients agreed to valuable items, because these companies do not have to fight reduced incomes at the time of commodity prices tend to decline. Buyers may lose MonIn the long run, if energy prices actually fall, while suppliers could have problems if prices increase more than expected.
Energy companies would become insolvent if steps were not taken to protect these entities from the disadvantage of the price, because if prices were rising, then the company's own costs would increase, while its income remained the same. Therefore, many companies buy futures contracts from energy brokers. In the Futures contract, the broker or energy manufacturer agrees to sell the amount of energy another party at a specific price on a particular date in the future. Before publishing these contracts, brokers try to anticipate future prices' movements. Brokers generally agree to lock the current market price if the broker believes that energy prices are likely to drop before the futures contract is held.