Most Americans felt the burn of volatile gas prices over the past year, especially last summer. For those people who use their car frequently for work or vacation, spikes in the cost of gas can be frustrating and costly. And as more people forgo expensive vacations for budget-friendly road trips this summer, gas prices will once again come into focus, especially considering the predictable rise of gas prices during the summer.
Ever wish you could hedge gas prices like big companies do? Startup Petrofix will let you do just that. It just launched an online service that aims to control gas prices for individuals and small businesses, by locking in a fixed price for gas so drivers don’t have to incur the extra costs when the price at the pump goes up.
Here’s how it works. Consumers can sign up for a plan ranging from 3 months to 2 years. To enroll in a plan, you pay a fee, which is based on where you live and your personal gas consumption. Petrofix provides you with online tools to help estimate how much gas you use in a given month. So for the West Coast, where gas is more expensive, you pay $42 for 3 months if you use about 50 gallons per month, which comes out to be around $0.28 per gallon. If gas prices go up, the company will cut you a check or refund at the end of each month for the increase in price from the time you locked in the gas price. In this scenario, you only come out ahead after the fee if gas prices rise more than $0.84 per gallon. But if gas prices keep going up, you save more (see this hypothetical example).
The other catch is that if gas prices go down (which they often do) then you are locked into a plan that requires you to pay for something you don’t necessarily need. But for those individuals and small businesses who are constantly on the road and rack up the miles, the service may not be such a bad investment considering the volatility of the market. And if you can lock in prices when they are still low, the hedge should work. Just don’t wait until July when gas prices are above $4.00 a gallon.
At first glance it looks to be a good idea. Especially if you are in a major city or somewhere like Hawaii where prices last year were well above $4.00/gal. I might $40 for 3 months isn’t too bad. At least not for the summer when it is almost certain prices will go above at least $3.00/gal.
Except I think it’s been done already (moregallons.com, mygallons.com), so technically it’s not an ‘idea’ anymore, it’s an implementation.
big was the catylst for the recession were in today.
WisdomLocator.com – think about it
douche, it’s we’re, not were.
cantspelllocator.com — I’m illiterate
your a dumb shit, now wonder the police force fired your ass…
When has a “startup” service like this EVER stuck around in the long run.
‘launched’ typo in 2nd paragraph.
No twitter integration?
You can hedge yourself by purchasing call options on the UGA ETF for about $0.10-$0.15/gal (or futures if you are so inclined).
Good ‘call’ (pun intended). I still am not sure why more people, especially those with some certainty around their consumption patterns, don’t do this on their own. Oh well, if someone can make a buck on it well so be it.
Jeff,
See, another comment of mine below in reply to Adam.
you said…
especially those with some certainty around their consumption patterns, don’t do this on their own.
Because commodity price is dependent on risk-free interest rate and you can’t predict exactly the direction of where the interest rate is going, can you? That’s the reason why financial analysts use hedging is to minimize your loss if the interest rate move against you. It is a form of insurance (a different form of insurance). Companies which trade internationally also use hedging to insure them (ie, to lock them in) against exchange rate movement. The value of your dollar is dependent on the exchange rate movement. Most buy currency derivative for insurance.
The founders of Petrofix are far more knowledgeable than Bernie Madoff regarding investment advise.
Too much brain damage!!
What does this have to do with Twitter?
liya
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Gas prices here are 2 dollars per liter.
They should start one in Canada. Oh wait, the govt there run by the mob would shut it down faster than you can say online car pooling.
Don’t Canadians wonder why they pay twice as much for gas when Alberta essentially has more oil than the middle east?
If Canadians stopped paying twice as much for gas, the office du leur langue frenchais would go broke and so would ministries such as public works, which was headed by a notorious gangster who awarded multimillion dollar tech contracts to whoever bought him enough crap.
As for the American version of this. I will probably sign up. I pay a good $40 for gas every month to get to and from work. Because I am driving to San Fran for Google IO, I will no doubt spend another $40-50 for the round trip.
Sounds like a good service for Americans only.
Ever heard of peak oil? This is doomed to failure.
Peak Oil is a theory put forward by a single person, and although it gained some traction, it isn’t exactly widely accepted by economists. If oil prices spike, demand will wane. Yeah, it’ll suck for some people, but its not going to be the end of the world.
In any case, I doubt this company is actually taking the risk on their side. They are probably just acting as a broker and securitizing or selling the risk to hedge funds and other investors.
Most Americans felt the burn of volatile gas prices over the past year, especially last summer. For those people who use their car frequently for work or vacation, spikes in the cost of gas can be frustrating and costly.
Good idea and good luck to Petrofix.
Another point to Petrofix developers, look at Linear Programming (LP) for its use in derivative hedging. This is the proper way of doing hedging is via LP and there are some LP open sources available on the internet in various languages (Fortran, C/C++, Matlab, etc,…). I use LP for hedging of various assets in the financial market (forex, equity, derivative).
This is basically gas insurance.
Gas prices go up more then expected and these guys go to the deadpool unless they get a gov’t bailout.
Wrong. They just buy a call option on an oil-linked ETF (like UGA, mentioned above, or USO or USL) that matches a customer’s gas usage, charging a spread in the process. It doesn’t matter what gas prices do, they made money. (Though if prices go down, or people think they’ll go down, the service is useless and the company will see week demand.)
er, “weak” demand…
Adam, reading their website I found out that the Petrofix founders are trained financial engineers (a.k.a computational finance) so they’re already aware of what you’re talking about ie, derivative trading. There are basically 2 major types of options (irrelevant if they’re european/american, vanilla, exotic, etc,…), the equity-based type & interest-based type (of course there are other minor types but that’s beside the point). Commodity price is interest-rate dependent, so I am sure that the founders are doing something like this or intended to include such functionalities in their system.
They’re really just buying the cap on the exchange. Even if gas goes to $10 they just pass it along like a middleman. No insurance necessary.
leena dear,
you come out ahead if gas prices are up on average by the fee amount (0.28 a gallon, to use your example) for all three months and NOT 0.84 a gallon as you have suggested
Interesting concept. I think I’ll stick with my own budgeting/planning for now!
I like the idea, but I wonder if there are any possible legal/regulatory issues with what they are doing. Might it be considered insurance? Might it be a an SEC Regulated future or option?
That the good gods listen to them.