Comment by Fascist Nation

Entered on: 6/30/2008 4:02:22 PM

This assumes the price of gasoline will decrease -- I assume -- to make money. The only problem I see, is it removes incentive for the consumer to shop for a cheaper gallon of gas, instead they would simply buy gallons at whatever price where it is most convenient.

Comment by Brock

Entered on: 6/30/2008 6:56:24 PM

I'm not sure who you're worried about making money, but, in a nutshell, the company is aggregating demand. The article quotes them as saying they "aren't selling futures" which is true; they're buying futures. They sell the gas from one contract at the spot price. The funds garnered from selling the gas goes to buying another contract.

If the spot price increases, they profit from appreciation of their contract. If the price goes down, they profit from the difference between what the customer paid and the spot price at the time the customer sells the remaining gallons to them.

It's not such a "sophisticated hedging strategy" as they intimate.