Time for Consumers to Dabble in Gasoline Futures?

By Dennis Haak

11.20.2008

The unprecedented runup in both crude oil and gasoline prices earlier in 2008, as well as the equally swift collapse in oil prices over the past few months has given me the motivation to seek a way to lock in today’s gasoline prices – yesterday I saw my first $1.99 for regular in a long time – with the expectation that when the economy improves and global demand continues its upward march against an ever-dwindling quantity of proven crude oil reserves, the price of gasoline is in the midst of what is likely at best a temporary retreat.

If, in fact, my prognostication is correct, there may be no better time over the next several years than the present circumstances in which to somehow stock up on low-priced gasoline supplies for the seemingly-inevitable climb back to $4.00 per gallon and beyond.  The problem is, the crude oil futures contracts that large companies such as Southwest Airlines use have high barriers for entry and are difficult, if not impossible, for a small consumer to utilize to protect oneself from fuel price spikes.  I’m proposing something far simpler – and in fact, as with most great ideas I have, someone seems to have thought of it before I did.  (For another example of one of my too-little-too-late ideas, ten years ago, I wanted to start a website that listed fuel prices at local gas stations.  Such tools now exist with far faster updates and far faster accuracy and scale than anything I could have pulled together as a 23 year old fresh out of college.)

So, how to protect oneself from fuel price increases?  The simple answer is to purchase gasoline now when it’s cheap, and use that gasoline later when – presumably – gasoline becomes expensive again.  As with most “simple” things, however, the devil is in the details.  Of course, purchasing and physically storing hundreds or thousands of gallons of gasoline is more than impractical (although for years my late grandfather had a small underground fuel tank on his property that he’d use to fill his car, pickup, and small tractor).  Most oil company gift cards are purchased in denominations of money rather than in gallons (so a $50 gas card buys 25 gallons at $2.00 per gallon, but just 12.5 gallons at $4.00 per gallon).

One company that has come up with a solution, though has not yet rolled it out for prime time (or even beta testers, apparently) is MyGallons.com.  After paying an annual registration fee to the company, customers of MyGallons receive a debit card from the company that works at participating service stations.  The customer’s account is either automatically filled with a specified number of gallons of gasoline or the customer can do so manually.  Once at the service station, the customer swipes his card and enters a four-digit PIN, and the pump will dispense gasoline that is subtracted – in the form of pre-purchased gallons – from his MyGallons account.

I registered as a user of MyGallons last week and haven’t heard anything from them aside from a initial confirmation e-mail message.  The company was also subject of some complaints lodged with the South Florida Better Business Bureau because it had been accepting membership fees before the service was live and before it had established a payment network that could handle the transactions.  The company has since stopped accepting membership fees and is working on securing a new payment processing network.  It seems to me that this would be a more than perfect time for MyGallons to be up and running for obvious reasons, so I’m hoping that they get their payment network functioning, sign up participating stations, and roll out the service nationwide in the next few weeks.  The introductory video on the website features the company’s founder saying, “although our efforts have been temporarily stalled, our spirits have never wavered.”  That doesn’t sound like a good omen, nor does, “there are a number of rumors and falsehoods circulating about MyGallons.”

While the MyGallons concept seems to be mostly sound, it occurs to me that perhaps a simpler idea (at least for consumers) would be for oil companies to offer prepaid fuel cards with the customer’s choice of buying a specific number of gallons or a specific dollar amount.  The dollar amount cards would be easy, but the gallon quantity cards would require some behind-the-scenes work on the part of the company.

Suppose a customer purchased 100 gallons of gasoline at $2.50 per gallon, and put it onto their pre-paid card via an automatic refill from a major credit card.  Those 100 gallons would cost the customer $250.  If the price at the pump when that individual needed to fill their car was $2.50 or below, the card should charge the linked credit card the actual pump price, leaving the prepaid balance intact.  If the price at the pump is $2.51 and above, the card should debit the prepaid balance.  Something like this would free customers from the necessity of being aware of their pre-paid price and deciding whether or not to utilize their prepaid card.

There are probably even better alternatives than either my idea or the MyGallons concept – neither of which are currently available in the market, so neither of which would be of any value to consumers in this golden buying opportunity – but I’d settle for almost any way short of digging a big hole in my yard for a 500 gallon tank to find a way to save money on future gasoline purchases, and have been unable to find anything remotely close to what I’m looking for from quite a bit of online digging.  The potential savings could be substantial, because my CTS gets about 19 miles per gallon and I drive about 15,000 miles per year, and my wife’s Sienna AWD gets about 17 miles per gallon over 10,000 miles per year.  That means we use about 1,500 gallons of regular unleaded every year between us, which would cost $3,000 at $2.00 per gallon or $6,000 at $4.00 per gallon.  Now, if only I had a way to buy 1,500 gallons of gas at $2.00 per gallon, and $3,000 lying around to make that purchase.

COPYRIGHT Autosavant – All Rights Reserved

Author: Chris Haak

Chris is Autosavant's Managing Editor. He has a lifelong love of everything automotive, having grown up as the son of a car dealer. A married father of two sons, Chris is also in the process of indoctrinating them into the world of cars and trucks.

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3 Comments

  1. I’d love to do something like this fantasy, however, let’s face it: for a number of significant reasons (eg, some measure of energy independence, national security, the environment) there is no future in gasoline. The sooner we act with that reality in mind, the better for us all, economically and ecologically.

  2. Rather than investing in oil futures or bulk gasoline, just invest in the oil and gas industry. The stock prices swing with the commodity prices.
    As for no future for gasoline, that’s simply not true. Gasoline may have to share the stage with propane, natural gas, electricity and maybe even hydrogen fuel cells, but it will never go away. It’s just too practical.

  3. I think futures markets bring a number of benefits to the global oil market. So, hoping that the investors are choosing crude oil as the best option to invest.

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