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+--- Thread: Locking in the price of diesel (/showthread.php?tid=7441)
Locking in the price of diesel - David Brady - 11-28-2008 12:57
Folks,
The average price of diesel, country wide, is around $2.50
per gallon. We all know that in the long run, prices will go
up. I stumbled upon and ETF that allows you to lock in the
price of gasoline. The ETF is managed by a firm called
United States Commodity Funds LLC (I have no financial
interest). Although USCF doesn't have an ETF that tracks
diesel fuel prices, gasoline seems to be a reasonable
approximation. The gasoline ETF has a ticker symbol: UGA
Today's price for UGA is $23.96. Assuming I'll travel 10,000
miles next year, and I get 7 mpg, I'll need 1500 gallons. At
today's diesel prices I'll spend (1500 x 2.5) = $3750, so I
buy $3750 worth of UGA. As the price goes up at the pump,
I get the same percentage movement in UGA. After each
fill up, I call my broker and sell the same amount of UGA.
This way prices can fluctuate all they want but I'm guaranteed
to not spend more than $2.50 per gallon for my next 1500
gallons.
Of course, as with any futures contract, the price per gallon
may go down (not likely). In this case, I'll spend less at the
pump, but my UGA holding will decrease by the same percentage.
In this case I'll probably not sell UGA and simply hold it till
prices appreciate.
David Brady
'02 LXi, NC
Locking in the price of diesel - George Burke - 11-28-2008 16:29
Thats very interesting David. I want to go to Texas and back this coming spring, and then a fairly shorttrip to Ga. and Tn. later will be the extent of my travels. Does this co. also give you the price of propane. Just before gas prices went downI surveyed the Charlotte area propane market. It was $4.29, $4.19,$3.71, and U-haul wasat first $4.50, but after I kind of protested and mentioned $3.71, he said see the manager and you might get it for $2.99, but you have got to ask. Has anyone in the N.C., S.C., Ga., or Tn./Va. area filled up recently and have gotten a better price? Also is it common practice for folks like U-Haul to deal with their customers this way? Thanks, George Burke 1977 FC31 gasser
On Fri, Nov 28, 2008 at 7:57 PM, David Brady <"dmb993@earthlink.net"> wrote:
Folks,
The average price of diesel, country wide, is around $2.50
per gallon. We all know that in the long run, prices will go
up. I stumbled upon and ETF that allows you to lock in the
price of gasoline. The ETF is managed by a firm called
United States Commodity Funds LLC (I have no financial
interest). Although USCF doesn't have an ETF that tracks
diesel fuel prices, gasoline seems to be a reasonable
approximation. The gasoline ETF has a ticker symbol: UGA
Today's price for UGA is $23.96. Assuming I'll travel 10,000
miles next year, and I get 7 mpg, I'll need 1500 gallons. At
today's diesel prices I'll spend (1500 x 2.5) = $3750, so I
buy $3750 worth of UGA. As the price goes up at the pump,
I get the same percentage movement in UGA. After each
fill up, I call my broker and sell the same amount of UGA.
This way prices can fluctuate all they want but I'm guaranteed
to not spend more than $2.50 per gallon for my next 1500
gallons.
Of course, as with any futures contract, the price per gallon
may go down (not likely). In this case, I'll spend less at the
pump, but my UGA holding will decrease by the same percentage.
In this case I'll probably not sell UGA and simply hold it till
prices appreciate.
David Brady
'02 LXi, NC
Locking in the price of diesel - Pete Masterson - 11-29-2008 03:44
As for U-Haul, check out a google search for "U-Hell" --- and then you'll get the word about that company. I wouldn't ever rent anything from them ... I had my "moving experience" with them many years ago -- never again. I've had good service from Budget (truck) rental and a small local company in my area. (However, not having propane on my coach, I don't ever shop for it.)
The ETF is very interesting ... but... at least one analyst expects the oil prices to drop as low as $20 per barrel over the next year or so. So, diesel prices may drop down somewhat more. The same analyst also figures that oil will eventually rise again to the $80 per barrel range in a couple of years. (Take this, and any analyst's predictions, with a large grain of salt.)
Pete Masterson
'95 Blue Bird Wanderlodge WBDA 42
"aeonix1@mac.com"
On the road atÂ
On Nov 28, 2008, at 9:29 PM, George Burke wrote:
Thats very interesting David. I want to go to Texas and back this coming spring, and then a fairly short trip to Ga. and Tn. later will be the extent of my travels. Does this co. also give you the price of propane. Just before gas prices went down I surveyed the Charlotte area propane market. It was $4.29, $4.19,$3.71, and U-haul was at first $4.50, but after I kind of protested and mentioned $3.71, he said see the manager and you might get it for $2.99, but you have got to ask. Has anyone in the N.C., S.C., Ga., or Tn./Va. area filled up recently and have gotten a better price? Also is it common practice for folks like U-Haul to deal with their customers this way? Thanks, George Burke 1977 FC31 gasser
On Fri, Nov 28, 2008 at 7:57 PM, David Brady <"dmb993@earthlink.net"> wrote:
Folks,
The average price of diesel, country wide, is around $2.50
per gallon. We all know that in the long run, prices will go
up. I stumbled upon and ETF that allows you to lock in the
price of gasoline. The ETF is managed by a firm called
United States Commodity Funds LLC (I have no financial
interest). Although USCF doesn't have an ETF that tracks
diesel fuel prices, gasoline seems to be a reasonable
approximation. The gasoline ETF has a ticker symbol: UGA
Today's price for UGA is $23.96. Assuming I'll travel 10,000
miles next year, and I get 7 mpg, I'll need 1500 gallons. At
today's diesel prices I'll spend (1500 x 2.5) = $3750, so I
buy $3750 worth of UGA. As the price goes up at the pump,
I get the same percentage movement in UGA. After each
fill up, I call my broker and sell the same amount of UGA.
This way prices can fluctuate all they want but I'm guaranteed
to not spend more than $2.50 per gallon for my next 1500
gallons.
Of course, as with any futures contract, the price per gallon
may go down (not likely). In this case, I'll spend less at the
pump, but my UGA holding will decrease by the same percentage.
In this case I'll probably not sell UGA and simply hold it till
prices appreciate.
David Brady
'02 LXi, NC
Locking in the price of diesel - David Brady - 11-29-2008 04:41
Hi George,
Here's the link to the ETF's:
http://www.unitedstatescommodityfunds.com/
They also provide oil, heating oil, and natural gas ETF's.
I neglected to mention that taxes will need to be paid on
capital gains, your tax consequences are you unique to you,
but with some planning the tax consequence could be taxed
at the capital gains rate as opposed to income tax rates.
Food for thought.
David Brady
'02 LXi, NC
George Burke wrote:
Thats very interesting David. I want to go to Texas and back this
coming spring, and then a fairly shorttrip to Ga. and Tn. later will
be the extent of my travels. Does this co. also give you the price of
propane. Just before gas prices went downI surveyed the Charlotte area
propane market. It was $4.29, $4.19,$3.71, and U-haul wasat first
$4.50, but after I kind of protested and mentioned $3.71, he said see
the manager and you might get it for $2.99, but you have got to ask.
Has anyone in the N.C., S.C., Ga., or Tn./Va. area filled up recently
and have gotten a better price? Also is it common practice for folks
like U-Haul to deal with their customers this way? Thanks, George Burke
1977 FC31 gasser
On Fri, Nov 28, 2008 at 7:57 PM, David Brady
<"dmb993@earthlink.net">
wrote:
Folks,
The average price of diesel, country wide, is around $2.50
per gallon. We all know that in the long run, prices will go
up. I stumbled upon and ETF that allows you to lock in the
price of gasoline. The ETF is managed by a firm called
United States Commodity Funds LLC (I have no financial
interest). Although USCF doesn't have an ETF that tracks
diesel fuel prices, gasoline seems to be a reasonable
approximation. The gasoline ETF has a ticker symbol: UGA
Today's price for UGA is $23.96. Assuming I'll travel 10,000
miles next year, and I get 7 mpg, I'll need 1500 gallons. At
today's diesel prices I'll spend (1500 x 2.5) = $3750, so I
buy $3750 worth of UGA. As the price goes up at the pump,
I get the same percentage movement in UGA. After each
fill up, I call my broker and sell the same amount of UGA.
This way prices can fluctuate all they want but I'm guaranteed
to not spend more than $2.50 per gallon for my next 1500
gallons.
Of course, as with any futures contract, the price per gallon
may go down (not likely). In this case, I'll spend less at the
pump, but my UGA holding will decrease by the same percentage.
In this case I'll probably not sell UGA and simply hold it till
prices appreciate.
David Brady
'02 LXi, NC
No virus found in this incoming message.
Checked by AVG. Version: 7.5.552 / Virus Database: 270.9.11/1816 - Release Date: 11/27/2008 7:53 PM
Locking in the price of diesel - hippieforever3 - 11-29-2008 06:08
What you may be neglecting is that all of these commodity options have
a "time value". You are paying a premium for the assurance that your
price will be predictable over some period. (There is no free lunch.)
Right now with the tremendous volatility in oil and gas prices I KNOW
the time premiums are a relatively high percentage of the contract
price.
I'm not saying this won't work out for you but just cautioning you to
anticipate and account for this time value premium. A reasonable guess
is that fuel prices would have to go up 15-20% to make this even
marginally worthwhile and 40-50% to make it worth the trouble.
Now if you were planning a 20 bird caravan and paying for all the
diesel, it would be a different matter.
Regards,
GPSGary
84FC35
Locking in the price of diesel - David Brady - 11-29-2008 06:15
That's correct, it's all in the Prospectus. I might add that one needs
to be aware of liquidity factors also; i.e., what's the typical daily
volume of UGA.
Basically these methods come down to hedging against higher future
prices. There are other investment vehicles available to achieve these
ends.
David Brady
'02 LXi, NC
hippieforever3 wrote:
What you may be neglecting is that all of these commodity options
have
a "time value". You are paying a premium for the assurance that your
price will be predictable over some period. (There is no free lunch.)
Right now with the tremendous volatility in oil and gas prices I KNOW
the time premiums are a relatively high percentage of the contract
price.
I'm not saying this won't work out for you but just cautioning you to
anticipate and account for this time value premium. A reasonable guess
is that fuel prices would have to go up 15-20% to make this even
marginally worthwhile and 40-50% to make it worth the trouble.
Now if you were planning a 20 bird caravan and paying for all the
diesel, it would be a different matter.
Regards,
GPSGary
84FC35
No virus found in this incoming message.
Checked by AVG. Version: 7.5.552 / Virus Database: 270.9.11/1818 - Release Date: 11/28/2008 7:31 PM