Headlines

January 20, 2010
Another Fuel Hedging Program Launched Officially Amid High Oil Prices

Entrepreneur companies are targeting consumers with the launch of new fuel hedging programs again this year, hoping that consumers would be keen to hedge against high oil prices.
  
NYMEX RBOB futures prices were relatively higher than a year ago at $2.0336/gal versus $1.7738/gal a year ago.
  
There was some hype about retail fuel hedging programs in the summer of
2007 when prices soared to record highs, but the success of these programs was limited when prices collapsed shortly.
  
With the gradual recovery of oil prices over the past several months, these entrepreneur companies are giving these programs another go.
  
OPIS notes that these fuel hedging products do not guarantee a customer will save money. Instead, these programs offer a risk mitigation product.
  
On Jan. 7-10, a fixed-price secured fuel savings program, MoreGallons.com, was officially launched at the 2010 International Consumer Electronic Show held in Las Vegas.
  
MoreGallons has been operating under a soft launch since May 2009.
  
The official launch two weeks ago was to announce its partnership with Member Savings Program.
  
"With the price of fuel rising and becoming more volatile, the MoreGallons program offers the best price protection available to companies and government fleets," Steve Verona, founder and CEO of MoreGallons.com, told OPIS.
   
"One key differentiator of MoreGallons in comparison with other programs is the fact that the prepurchased fuel can be held for as long as the customer wishes, there is no expiration," he added.
  
Other programs have a time limit such that if the price doesn't sufficiently rise within the narrow time window, the customer loses all the money they invested for the price protection.
  
"With MoreGallons, there is no expiration, they never lose their gallons so long as they are a member," Verona said.

SIMPLE PROCESS

High-quantity users of fuel, about 100 gallons or more per month, can protect themselves from the instability of fuel prices by locking in the current price for use at a later date, according to MoreGallons.
  
This program can be used in conjunction with fleet or gas credit cards.
  
When fuel prices rise, members can simply redeem prepurchased gallons, saving money on this unavoidable business expense.
  
When signing up with MoreGallons, members pay an annual membership fee of
$79 regardless of the size of their fleet.
  
After joining, unleaded gas and diesel fuel can be prepurchased in increments of 100 gallons, paying the current price for fuel to be credited to their accounts as a balance in gallons, for a 6 cent per gallon service fee.
  
Members purchase gas at the pump as they always have, typically with a credit card or fleet fuel card.
  
When the monthly card bill arrives, the user can decide whether or not to cash in their pre-purchased fuel with MoreGallons.
  
If they decide to use their prepurchased fuel, customers simply complete an online form indicating the number of gallons they wish to cash in from their MoreGallons account and the money is electronically transferred to them within three business days to assist them in paying their card bill, minus a 3 cent per gallon service fee.
  
Early in January, Aegis Fuel Solutions, a Westport, Conn., company, launched a similar fuel hedging program called the Aegis Price Stability Product, which allows organizations of all sizes to lock in their prices of gasoline, diesel, and possibly even jet fuel, for the term of their choice.

U.S. government energy analysts nudged their 2010 petroleum projections slightly higher on Tuesday and introduced even stronger 2011 forecasts that assume continued economic recovery.
  
The Energy Information Administration's (EIA) January Short Term Energy Outlook expects the world oil market to "gradually tighten" over the next two years, with countries outside of the OECD (primarily Asia) showing the most demand recovery in 2010 and the OECD lagging until 2011. The agency tweaked its assumptions about U.S. Gross Domestic Product up a tenth of a percentage point to 2% in 2010 and used a forecast of 2.7% growth in 2011 as part of its petroleum projections for that year.
  
Leaving the 2009 average price of about $62//bbl far behind, the EIA is projecting the average price of U.S. benchmark crude West Texas Intermediate
(WTI) will weaken over the next few months (averaging $76/bbl in March). It forecasts oil to rise to $82/bbl in late spring and to $85 by late in 2010.
Annual average projections are in the same range -- $82 for 2010 and $84 for 2011.
  
Forecasts for retail motor fuel prices in 2010 were little changed from previous reports, but 2011 projections showed marked increases versus 2010.
  
Gasoline at the pump is expected to surpass $3/gal at some point during the spring and summer, EIA said. The 2010 average of $2.84/gal (revised a penny higher vs. the December report) jumps to an estimate just a few pennies short of $3 for all of 2011, while retail road diesel (up all of 2cts to $2.98/gal for 2010) is forecast to average $3.14 in 2011.
  
For only the second time since 1983, global oil demand fell in 2009. Having bottomed about halfway through last year, demand has been recovering and should increase by 1.1 million b/d in 2010 and by 1.5 million b/d the year after.
  
China's consumption is projected to increase more than 400,000 b/d in both 2010 and 2011, the EIA said., while the U.S.'s contribution to 2010 growth is estimated at about 200,000 b/d.
  
U.S. demand saw small upward adjustments for motor fuels. The EIA moved gasoline consumption in 2010 up to 9.054 million b/d from 9.04 million b/d and forecast 2011 demand at 9.121 million b/d (up 0.7%). Distillate consumption in 2010 was tweaked 5,000 b/d higher to 3.695 million b/d and 2011 demand was estimated at 3.768 million b/d, an increase of 2%.
  
The petroleum analysis and forecasting agency expects what it sees as declining crude price volatility to move lower still in 2010. As of Jan. 7, the "implied volatility" of March 2010 crude oil futures options pricing by market participants had fallen to 34% from 40% at the beginning of December 2009, EIA said.
  
During the same period last year, implied volatility was as high as 87%, perhaps because "global oil markets still were adjusting to highly uncertain conditions following a price collapse from all-time highs for WTI futures in mid-2008," EIA analysts wrote in the outlook report.