Living Car Free - hedging on fuel prices

here is a site that allows you to buy as many gallons of gas at today's price, hedging against future price increases.

www.mygallons.com

discuss

That is gambling at it's finest loophole.

I notice the fuel oil delivery services are offering the same programs.

Be VERY CAREFUL with these. Sure, we are all convinced that prices are going up, but you have to crank the numbers to make sure that you believe the prices are going to go up as fast as the fuel oil (or gasoline) seller is suggesting.

I was looking over a similar offer for my elderly mother. They had an increase on fuel oil going up nearly 20 cents per month through every month this summer. The "deal" was only good up until September 1.


I hedged AGAINST the idea that fuel oil will go up 60 cents per gallon in the next three months. Maybe I am wrong, but you have to do the math, read the fine print, and be smart about it.

These fuel sellers are like casino dealers. You MIGHT win, but remember - the game is structured so the house (fuel sellers) win most of the time.

I would be highly suspicious of this. If oil prices continue to increase steeply over the next several years, and I suspect they probably will, the company need only to cite economic hardship, fold up its tents, and go away, and at that point there's not a whole lot consumers would be able to do, short of expensive legal action.

an easier way to hedge is to just buy shares of USO or OIL, etf's tracking Oil Futures. I put 25% of my IRA into OIL a few months back, it's up 30% but that hasn't covered the losses in the stock market for the other 75% :(

an easier way to hedge is to just buy shares of USO or OIL, etf's tracking Oil Futures. I put 25% of my IRA into OIL a few months back, it's up 30% but that hasn't covered the losses in the stock market for the other 75% :(

I think you are 100% correct. Ironically, it is investors like this that are driving up the price of petrolium more than the actual increase in demand.

I think the risk as an investor is that if, indeed, investors and speculators drive the price of fuel to levels that are not supported by consumer demand, the investors could be left holding the bag and losing money.

Being in commodity sales myself, I believe this is a very real possibility. The demand for petrolium has not increased proportionately with the increase in price. Whenever I see this happen with other commodities, the feast is always followed by a huge price crash. It just takes a little while for the buyers to adjust to reduced use of the commodity. Pretty soon, the sellers are sitting on inventory and have to drop their pants to move it.

I don't see petrolium as being much different in that regard. The idea that petrolium has inelastic demand is simply not real. Demand will decrease with price increases. We have seen it in the past and we are seeing in now. It is very possible that the armchair investors today could take a hit.

I think you are 100% correct. Ironically, it is investors like this that are driving up the price of petrolium more than the actual increase in demand.

I think the risk as an investor is that if, indeed, investors and speculators drive the price of fuel to levels that are not supported by consumer demand, the investors could be left holding the bag and losing money.

Being in commodity sales myself, I believe this is a very real possibility. The demand for petrolium has not increased proportionately with the increase in price. Whenever I see this happen with other commodities, the feast is always followed by a huge price crash. It just takes a little while for the buyers to adjust to reduced use of the commodity. Pretty soon, the sellers are sitting on inventory and have to drop their pants to move it.

I don't see petrolium as being much different in that regard. The idea that petrolium has inelastic demand is simply not real. Demand will decrease with price increases. We have seen it in the past and we are seeing in now. It is very possible that the armchair investors today could take a hit.

I don't agree with you really, otherwise futures positions would already be driven down once delivery dates hit. The demand has shown to be reasonably inelastic - US usage of gasoline is down 2% despite a 100% increase in price. Supply would be typically increasing to match demand except that it turns out it's not that easy right now to increase oil supply.

Regardless, in my case if oil prices drop and my hedge loses value, the stock market will come back up because of the drop in oil prices which boosts the economy. That's why it's really a hedge.

I buy and sell energy for a living, been in the energy business since 1980. The Crude oil, and natural gas margkets are currently backwerdated, which means I can buy energy for delivery in 2009 for less than the current price.

In short, you don't want to lock in the current high prices, they will go down....you can look at the NYMEX energy futures prices for diesel, gasoline, etc and see the quotes

I don't agree with you really, otherwise futures positions would already be driven down once delivery dates hit. The demand has shown to be reasonably inelastic - US usage of gasoline is down 2% despite a 100% increase in price. Supply would be typically increasing to match demand except that it turns out it's not that easy right now to increase oil supply.

Regardless, in my case if oil prices drop and my hedge loses value, the stock market will come back up because of the drop in oil prices which boosts the economy. That's why it's really a hedge.

I think Merlin gives good insight into the crystal ball in his post (just above this one).

Don't be so sure about the inelasticity of petro demand. A fairly small decrease in demand can have a disproportionately large decrease in price when you are talking about commodities. In the case of gasoline, if it doesn't sell, it doesn't have anywhere to go. In addition to less consumer gasoline being bought at the pumps, a slow-down in the economy means less goods being moved by trucks.

We are talking HUGE quanities of petro moving every day. If you pinch off the end of the hose, the hose starts to swell really fast. There are is not a lot of excess warehousing for excess fuel to go.

In my business, a minor slow-down in demand can make prices drop like a rock overnight.

I agree that there will always be a demand for gasoline and I believe that prices will continue to climb probably at least for the next 18 months. However, I do believe that there is now a shift toward conservation that will pick up speed. Remember, conservation is a demand change that can literally happen overnight. Gasoline demand is not inelastic and the unsuspecting futures investors could get hurt by assuming that it is.

I think Merlin gives good insight into the crystal ball in his post (just above this one).


Merlin says gas is backwardated, my knowledge was that it had actually moved into Contango which is very unusual for oil.


Gasoline demand is not inelastic and the unsuspecting futures investors could get hurt by assuming that it is.

If the money I have in oil futures went to zero I wouldn't be hurt too bad, and like I said that would probably be accompanied by a rise in stock prices. Regardless, from a personal standpoint I really hope that the demand is very elastic, the price goes way up due to supply constraints and usage goes way down. I will gladly pay 2-3x for food/etc... for the benefit of 1/3rd the number of vehicles on the road.

I buy and sell energy for a living, been in the energy business since 1980. The Crude oil, and natural gas margkets are currently backwerdated, which means I can buy energy for delivery in 2009 for less than the current price.

In short, you don't want to lock in the current high prices, they will go down....you can look at the NYMEX energy futures prices for diesel, gasoline, etc and see the quotes

http://finance.yahoo.com/q/fc?s=CLQ08.NYM

Not entirely backwardated - you have to go to July 09 to get less than the spot price. Generally they are always backwardated because if you are willing to pay more for it tomorrow, nobody will sell it to you today. So the spot price goes up. The contracts for the next year are actually in contango to the spot price because there are concerns that supply could be disrupted.

Why does it go into backwardation in 2009? By 2009 Bush will be out of office and frankly one can hope there will be a reduced chance of an invasion of Iran.

anyone going to buy a bunch of gas at $1.85 (or whatever)/ gal prices?

Couldn't you achieve something like this by shorting Exxon Mobil? Although, I believe if I looked at my meager 401k, I wouldn't be surprised that a major chunk of my selected retirement funds would be betting on Exxon Mobil going up.

I did my hedging on fuel price years ago, by finding a workplace closer to home, making as many trips by bicycle as I can, which reduced my yearly fuel expenditures eighty percent. Instead of waiting for the price of fuel to go up in order to use the money invested, I get to use that money everytime I pull out one of my bikes.

I put 25% of my IRA into OIL a few months back, it's up 30% but that hasn't covered the losses in the stock market for the other 75% :(



...Ironically, it is investors like this that are driving up the price of petrolium more than the actual increase in demand.

I think the risk as an investor is that if, indeed, investors and speculators drive the price of fuel to levels that are not supported by consumer demand, the investors could be left holding the bag and losing money.

Being in commodity sales myself, I believe this is a very real possibility. The demand for petrolium has not increased proportionately with the increase in price. Whenever I see this happen with other commodities, the feast is always followed by a huge price crash. It just takes a little while for the buyers to adjust to reduced use of the commodity. Pretty soon, the sellers are sitting on inventory and have to drop their pants to move it.

I don't see petrolium as being much different in that regard. The idea that petrolium has inelastic demand is simply not real. Demand will decrease with price increases. We have seen it in the past and we are seeing in now. It is very possible that the armchair investors today could take a hit.



I don't agree with you really, otherwise futures positions would already be driven down once delivery dates hit. The demand has shown to be reasonably inelastic - US usage of gasoline is down 2% despite a 100% increase in price. Supply would be typically increasing to match demand except that it turns out it's not that easy right now to increase oil supply.

Regardless, in my case if oil prices drop and my hedge loses value, the stock market will come back up because of the drop in oil prices which boosts the economy. That's why it's really a hedge.



[.....]
In short, you don't want to lock in the current high prices, they will go down....you can look at the NYMEX energy futures prices for diesel, gasoline, etc and see the quotes


....Don't be so sure about the inelasticity of petro demand. A fairly small decrease in demand can have a disproportionately large decrease in price when you are talking about commodities. In the case of gasoline, if it doesn't sell, it doesn't have anywhere to go. In addition to less consumer gasoline being bought at the pumps, a slow-down in the economy means less goods being moved by trucks.
[....]
I agree that there will always be a demand for gasoline and I believe that prices will continue to climb probably at least for the next 18 months. However, I do believe that there is now a shift toward conservation that will pick up speed. Remember, conservation is a demand change that can literally happen overnight. Gasoline demand is not inelastic and the unsuspecting futures investors could get hurt by assuming that it is.


It's interesting to read predictions after the fact. Merlin and mike were proved right, although mike was a little off on the timing. I give them a lot of credit, since most "experts" were off on the ongoing crash in gas prices. However, we'll never know what would have happened if there had been no financial crisis, which is strongly supressing demand even at very low prices. Not even mike or Merlin predicted the crisis.

Like murphstahoe, I would have been wrong if I had posted here in July. A little later I realized oil would go down--but only after I started seeing price declines in other commodities.

Personally, like dynodonn, I hedge by decreasing my personal dependence on oil as much as I can. :)

It's interesting to read predictions after the fact. Merlin and mike were proved right, although mike was a little off on the timing. I give them a lot of credit, since most "experts" were off on the ongoing crash in gas prices. However, we'll never know what would have happened if there had been no financial crisis, which is strongly supressing demand even at very low prices. Not even mike or Merlin predicted the crisis.

Like murphstahoe, I would have been wrong if I had posted here in July. A little later I realized oil would go down--but only after I started seeing price declines in other commodities.

Personally, like dynodonn, I hedge by decreasing my personal dependence on oil as much as I can. :)

Thanks Roody.

The reason that I did not predict the financial "crisis" is because there is no "crisis". This is manufactured panic to justify pouring huge amounts of money into the pockets of a few very wealthy and powerful people.

The banking system lent money to borrowers who should not have received loans. That was bad leadership and bad decision making. The only way they could have done that for as long as they did was if they knew in advance that the government would bail them out, or if they had the intention of making gobs of money and then running when their corporations failed.

It is wrong for our government to help propogate fear to justify giving money to Wall Street. Of course, propogating fear to justify travesty has been the hallmark of the Bush Administration. It only makes sense that they would fleece the American middle class one more time before leaving office.

It is wrong for our government to help propogate fear to justify giving money to Wall Street. Of course, propogating fear to justify travesty has been the hallmark of the Bush Administration. It only makes sense that they would fleece the American middle class one more time before leaving office.

But Obama also says the crisis is real, and the Democrats in Congress have been more gung-ho than the Republicans. What gives with that?

Also, Wall St. investors are pretty sure that there is a crisis. Are they play-acting to get bailout money?

The crisis is real. Too many people driving BMWs. Too many people getting paid way more than the value of their work. When CEOs are getting 20 million we are in need of a correction. Prices, health care, compensation, buying power will all adjust. The real loosers are pensioners who will suffer the pain and won't be around in time for the recovery.

Mike, like you posted on another thread, with the amount of money that is leaving the U.S., it's leaving behind a vacuum of high interest. Like cheap oil, low interest money can come addictive, making marginal businesses who relied on the low interest loans to stay afloat, sink like a rock. I think that with the current state of economy, the bailouts are compared to trying to put out a six alarm fire with a bucket brigade, the fire will go out, but the structure will need some considerable repair when it does.

Also, Wall St. investors are pretty sure that there is a crisis. Are they play-acting to get bailout money?

Yes, I believe they are. It is a lot like the Big Auto execs flying to Washington in private jets to beg for money and threaten economic armagedon for the USA if they don't get it.

Why, all of a sudden, is this a crisis? The irresponsible lending has been going on for eight years. Then, suddenly in November of 2008 it is a "Crisis" and Wall Street needs an immediate infusion of $700 Billion dollars of cash - no strings attached.

No other correction possibilities were given. No other plans that could be worked out over the course of a year or so were considered. The only possible option, we are told, was to give a whopping $700 billion dollars to a select group of large banks.

Could it possibly have anything to do with having a pal in the Treasury Department who is about to get the boot in two months?

They must think that the American taxpayers are idiots - and apparently we are.

Yes, I believe they are. It is a lot like the Big Auto execs flying to Washington in private jets to beg for money and threaten economic armagedon for the USA if they don't get it.

Why, all of a sudden, is this a crisis? The irresponsible lending has been going on for eight years. Then, suddenly in November of 2008 it is a "Crisis" and Wall Street needs an immediate infusion of $700 Billion dollars of cash - no strings attached.

No other correction possibilities were given. No other plans that could be worked out over the course of a year or so were considered. The only possible option, we are told, was to give a whopping $700 billion dollars to a select group of large banks.

Could it possibly have anything to do with having a pal in the Treasury Department who is about to get the boot in two months?

They must think that the American taxpayers are idiots - and apparently we are.

+1. It's remarkable how consistently the collective citizenry are willing to play Charlie Brown to the Corporate Lucy football.
No matter how many times we witness the grand theft of "free market" capitalism, we keep coming back for more.

http://heavethehawk.com/blogImages/1107charlie_brown_lucy_football.jpg

Yes, I believe they are. It is a lot like the Big Auto execs flying to Washington in private jets to beg for money and threaten economic armagedon for the USA if they don't get it.

Why, all of a sudden, is this a crisis? The irresponsible lending has been going on for eight years. Then, suddenly in November of 2008 it is a "Crisis" and Wall Street needs an immediate infusion of $700 Billion dollars of cash - no strings attached.

No other correction possibilities were given. No other plans that could be worked out over the course of a year or so were considered. The only possible option, we are told, was to give a whopping $700 billion dollars to a select group of large banks.

Could it possibly have anything to do with having a pal in the Treasury Department who is about to get the boot in two months?

They must think that the American taxpayers are idiots - and apparently we are.

You know the usual reasons given for the suddenness of the crisis--the housing bubble burst, causing massive mortgage defaults, causing loss of faith and illiquidity in poorly regulated financial markets, causing credit tightening around the world, causing layoffs and lessened consumer spending, and on and on.

None of this seems implausible to me. It should have been predicted, as the bursting of the bubble was always inevitable. I'm sure that some unreputable businesses will lie to get federal funds, but I doubt if the whole crisis is a phoney scam invented by Paulson and his Wall Street cronies.

But then, you were right about the crashing gas prices, so you might be right here too. :)

You know the usual reasons given for the suddenness of the crisis--the housing bubble burst, causing massive mortgage defaults, causing loss of faith and illiquidity in poorly regulated financial markets, causing credit tightening around the world, causing layoffs and lessened consumer spending, and on and on.

None of this seems implausible to me. It should have been predicted, as the bursting of the bubble was always inevitable. I'm sure that some unreputable businesses will lie to get federal funds, but I doubt if the whole crisis is a phoney scam invented by Paulson and his Wall Street cronies.

But then, you were right about the crashing gas prices, so you might be right here too. :)



No roody you are missing a couple of steps before that.


#1. The government forced banks to lend money to people who could not afford it..........because its only fair that EVERYONE has a house. Community Investment

#2. People lived on more than they made and borrowed, borrowed, borrowed until finally their world inevitably fell apart. I blame the consumers more than the bankers.

I used to get at least 5 credit card applications A DAY in the mail. Would it have been the banks fault if I used them? I ride my bicycle past 10 pay day loan places A DAY would it be their fault if I walked in and borrowed money?

Just because a mortgage company let you take out an ARM, or an Intererst Only or buy a house without any money down does not mean they should have done it.

Let them sleep under a bridge.

No roody you are missing a couple of steps before that.


#1. The government forced banks to lend money to people who could not afford it..........because its only fair that EVERYONE has a house. Community Investment

#2. People lived on more than they made and borrowed, borrowed, borrowed until finally their world inevitably fell apart. I blame the consumers more than the bankers.

I used to get at least 5 credit card applications A DAY in the mail. Would it have been the banks fault if I used them? I ride my bicycle past 10 pay day loan places A DAY would it be their fault if I walked in and borrowed money?

Just because a mortgage company let you take out an ARM, or an Intererst Only or buy a house without any money down does not mean they should have done it.

Let them sleep under a bridge.

Not everybody has a better sense of judgement when it comes to financial responsibilty like you and I. When bombarded with enough literature, high pressure ads, and lax loan regulations, even the most financially logical person would eventually succumb to the pressure if given enough time.
The financial world is now has to go back to more tried and proven methods, because the bailouts will only go so far.

Just buy DXO (http://finance.google.com/finance?q=DXO) and use your profits to buy gasoline.

We had a couple members who were always bragging about how much they were making with their oil stocks. I wonder how they're doing now?

Not everybody has a better sense of judgement when it comes to financial responsibilty like you and I. When bombarded with enough literature, high pressure ads, and lax loan regulations, even the most financially logical person would eventually succumb to the pressure if given enough time.
The financial world is now has to go back to more tried and proven methods, because the bailouts will only go so far.

Correct you are that there are MANY people who are irresponsible in their spending and ignorant of the ramifications of debt.

It is the LENDER who is responsible to his organization and to his lenders to qualify clients and not lend to individuals who are at a high risk of being able to repay the loan.

Like the auto companies making more SUVs, even though there was plenty of warning, who could pass up making more money on loans and credit until the crash? It was inevitable anyway.

Mike, like you posted on another thread, with the amount of money that is leaving the U.S., it's leaving behind a vacuum of high interest. Like cheap oil, low interest money can come addictive, making marginal businesses who relied on the low interest loans to stay afloat, sink like a rock. I think that with the current state of economy, the bailouts are compared to trying to put out a six alarm fire with a bucket brigade, the fire will go out, but the structure will need some considerable repair when it does.

The vaccum created by the foreign investment money leaving the USA is the biggest and most real threat that the USA faces today - and most people do not realize it. It is a bigger threat than the Wall Street and Big Auto debacles combined. Remember that much of the bad loans here in the USA were financed by foreign investors.

Right now, many foreign investors really got burned by the USA Wall Street sub-prime stupidity. Many foreign investors are looking for another place to put their money. The only question is determining where the next safest place is. Ironically, it might be some unsuspecting place like Japan - ya, crazy, I know. When there is a panic like this, however, money rushes to safety rather than opportunity as it rushed to the USA in 1997 after the crash of the financial systems of Asia and Latin America. The USA is not immune to this new phenominon of the Global Economy. Investors will be looking for countries, which have been more conservative and more stable than the USA in recent years in which to invest their money. That won't be difficult because the biggest mistake a lot of countries made was investing too heavily in the USA. Once a correction is made, there will be other more stable countries in which to invest.

Through international travel and business ventures, I literally watched the money leave Asia and rush like a big tidal wave of cash to the USA in 1997. It wiped out the then booming economies of Korea, Indonesia, Malaysia, and others. Seoul went from looking like Las Vegas to looking like a ghost-town within a matter of weeks. Nearly the same time, interest rates in the USA dropped like a stone and the USA economy started to swell. The same thing in reverse is primed to happen to the USA now. We are only one big investor's sneeze away from it.

The USA government's bail out of Wall Street will only save the USA economy IF it convinces foreign (and saavy domestic) investors to keep their money here rather than pulling out their investments and sending it somewhere else.

We had a couple members who were always bragging about how much they were making with their oil stocks. I wonder how they're doing now?

You know, you can make money in a down market. As long as they went short with something like DTO (http://finance.google.com/finance?q=DTO) they were fine.