I want to lock in today’s pump price, but I cannot easily store the fuel. I have enough cash to purchase a lifetime supply. I live in Austin, Texas, so solutions that require me to move to Minnesota are out.
Is there a reputable company that will sell me the fuel at today’s price and they could perhaps purchase some crude oil to ensure they can pay for my fuel in the future?
I know some companies lock in fuel purchases a year in advance, but I think you’d have trouble finding someone to honor a 50-year contract for … what? 600 gallons a year? Who would want to lock in such a contract? What would be their benefit? At some point, the benefit of having cash up front no longer outweighs future cost/price increases.
And, as you may have guessed, you can’t buy all of the gasoline now and then just keep it in a giant tank somewhere, since gasoline degrades after a few months.
Hi
I’ve kinda wondered the same thing. Except for trying to actually store a butt load of actual gasoline.
If you have, say a hobby, that requires a pretty predictable amount of fuel, it would be kind of nice to lock in an accetable price. Particularly if its a hobby you would really be unhappy if the availablity of affordable fuel made it impossible to pursue.
You would probably have to do something like buy oil futures or some such. If the prices really dropped, you would loose money, but since gasoline would be cheap? it would kind of even out.
However, if the futures skyrocketed, you could make big money, which you could now use to purchase your expensive gas?
Not sure about a lifetime supply, but you can lock in today’s prices onto a club card (for lack of a better term) at http://mygallons.com/
Couple catches I saw. You have to pay an annual membership, and the cards are only usable at limited gas stations. More details on that website.
I think you need to find some sort of hedging transaction. For example, suppose you buy stock in the 5 biggest companies which are developing new oil resources. If the price of oil goes up, the value of your stock will go up, thus offsetting the extra money you will have to pay for gas. On the other hand, the the price of oil goes down, then your stock will go down in value, but you will pay less for gas.
Just a thought.
I think that mygallons.com is doing hedging, too. If so, it seems like a nice convenient way to do what I wanted. If they can support local gas stations in their payment network. And if they can be trusted not to go belly up. Thanks for the pointer, Viscera.
It seems like the basic problem is that anyone selling you futures would also obviously think the price was going to go up again, and that would be priced in.
It sounds like you think fuel prices are going up. Try the commodities market. See a broker. Oil, gasoline are commodities just like pork bellies and soybeans. Hilary did OK in cattle, you can do it in Energy. Just ask Enron.
Um, no. This is more for budgeting and planning reasons, not for making profit. My consumption of gasoline is fairly constant, so why not purchase enough gasoline for the number of years I am planning to drive my car? I like today’s price, but would have no problem if the price went higher. If the price goes lower, I would shrug my shoulders and continue to use my gasoline. It’s basically a way to check off “gasoline” as paid without dealing with supply uncertainties or inflation.
Gasoline doesn’t keep.
You could purchase a lifetime supply by filling your tank, then dying before it’s empty.
Gasoline is a perishable item. If you can figure out how to lock in bread at the current price, then it’s a fairly simple extension to do the same for gasoline.
What are you going to do with your gasoline when we’re all using electric cars?
I think some of you are missing the point. If I contract with a company to purchase X gallons of gasoline at price Y, to be redeemed whenever I like, then mission accomplished. This avoids the whole “but gasoline is perishable!” argument.
If everyone decides to switch to electric cars, I can still drive my gasoline car without buying a new car or converting it to an electric car, which is presumably very expensive.
But what motivation is there for the company to sign such a contract? They would only come out ahead if gas prices drop long-term, which seems unlikely, which is, of course, why the consumer wants to sign the contract.
I can’t think, offhand, of a way you could do this. You can buy oil futures (or use a spread bet here in the UK). But as far as I know, these only go a few months into the future, not decades which is what you would need. Any bet or contract struck would of course rely on the stability of the company involved, which would be another element of risk to be factored in.
I think you’re missing the point. You pay for your lifetime 1000 gallons of oil futures now, and stick them in your filing cabinet where they take up way less room and play nicely with your furnace. When you need to fill up the car, you convert your paper oil to petrol by selling the former and buying the latter. The fact that at some points your oil futures might be worth more than you initially paid is incidental, as if you’ve invested properly, the 1000 gallons you buy now should continue to translate to 1000 gallons at any point in time.
Or to flip things around, imagine gasoline was good forever; you could then fill your swimming pool with premium today. If next week gasoline goes up to a million dollars a gallon, you can again be said to have “made a profit”… if you decide to sell it all. But provided you’re only using it as you need it, it all works out the same.
Southwest Airlines is known for having hedged jet fuel prices during most of the past decade, so as a result, it was profitable when other airlines lost money. (And it actually lost money during the third quarter of this year only because declining oil prices meant declines in the value of its contracts.) I found articles that said that the company has contracts through 2012 and is currently buying them for 2013. So it is possible to hedge up to five years ahead. I don’t know if it’s possible to do so beyond that.
What Dahu said is the key point.
For you (any you) to come out ahead over the long haul, somebody else has to come out short.
Any company can afford to make a few bad deals. But we’ve all seen a rash of problems recently that stem from companies where all their bets go sour at once.
It’s all about which of you bears the risk of future price movements. The sad truth is we can all push risk off onto somebody else only a little bit. Becasue if that somebody piles up too much, they fail as a business and it all comes tumbling back to you. In this case, by non-delivery of the paid-for gasoline in, say, 2019.
The OP said "Um, no. This is more for budgeting and planning reasons, not for making profit. "
If you want to lock in , say, 600 gallons at $1.50 for the year 2019, that inherently entails the idea of the price being different then vs. the $1.50 now. You can’t just assume that away. And that difference is inherently a risk of either profit or loss. Renaming it doesn’t change it.
You can put the$ equivalent of today’s gas price times today’s annual consumption times your expected lifespan into an escrow account. And hope as an investment it appreciates faster than gas prices do.
That’s the key point. Nobody is going to sign a contract to supply you with gasoline at $1.50 a gallon for the rest of your life, because they have no idea what the price of gasoline will be next week or next year or next decade.
You might find someone willing today to sell you the option to buy gasoline at a certain price tomorrow. But you’ll have to pay more than gasoline costs today, how much more I have no idea. If you want to just buy 10,000 gallons of gasoline today at $1.50/gallon, you’d have to find some way to store it and keep it from going stale.
Generally it’s very hard to find someone willing to guarantee to sell you a particular product at a particular price indefinately. You can find people willing to guarantee to sell you a particular product at a particular price at a particular time. This is the futures market.
But the only reason you want to buy a lifetime supply of gasoline at $1.50/gallon is because you believe the price is going to increase. Lots of people probably agree. Which is why those people would refuse to agree to sell you gas at $1.50/gallon ten years from now. You’d have to agree to pay some higher amount than today’s price, because tomorrow’s price is likely to be higher than today’s price. How much more would you be willing to pay? The equilibrium price you should be willing to buy at, and the price the other guy should be willing to sell at would turn out to be exactly the same price as the market price for that future gas. In other words, the “fair” price would turn out to cost exactly the same as forgetting the whole thing.