Lunaya Pravda

07 May 2006

The free market at work

For all those people whining about the high prices at the pump, this is an intersting, market-driven approach to buying gasoline.

First Fuel Banks bills itself as the only retailer in the country where customers can buy gasoline for the future and hedge against rising prices. It advertises no service charge and no storage charge, just a $1 lifetime membership fee.

Altrichter said one of his neighbors got in at First Fuel Banks several years ago and is now is withdrawing from a reserve that cost him 99 cents a gallon. "How about that!" he said.

While I've never bought into the price-fixing and opportunistic pocket-gouging allegations against Big Oil (price-fixing is from OPEC, if anyone), it has always bothered me that the price I pay at the pump is based not upon the cost of the crude necessary to produce it, but on the price of crude oil at some point in the future. Big Oil has the opportunity to hedge their bets against the future price of oil by locking in a fixed amount of crude at a fixed price. Though prices quickly respond when the per barrel price of crude futures increases, they never seem to adjust as quickly in the downward direction.

First Fuel Banks gives every consumer that same option to place a bet that the price of refined gasoline will be higher in the future and to lock in a given amount at a given price. It removes much of the volatility at the pump currently experienced by most of us. If the prices at regular gas stations are high, withdraw gasoline from your fuel bank. If prices at regular stations are low, fill up there and reserve your bank for times when the current prices are out of reach. Account administration costs are nearly nil. And I can't help but think that gasoline might be worth having for barter in a shit-hits-the-fan scenario, assuming you can still access it.

I heard Friday on NPR that Southwest Airlines has managed to keep their prices lower by securing fuel prices some two years ago, which, among other strategies, has enabled the company to weather the current airline market better than its competitors. I plan to research this more, but I'm finding this a fascinating free market solution that gives consumers options previous limited to large corporations, wealthy investors, and government.

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