Quote source : Yahoo! Finance
Rising gas prices are inspiring drivers to find new ways of protecting themselves against future increases--including buying gas in advance and investing in stocks that tend to rise along with the price of gasoline.
One new company, MyGallons.com, lets customers buy gallons ahead of time based on the current prices in their area--in theory, locking in a lower price--and then redeem those gallons at a later date, regardless of any price increases in the interim.
At MyGallons.com, the company makes those investments itself. Founder Steve Verona says that the company protects itself against future gas price increases through taking positions in the stock market. That way, customers can enjoy the simplicity of purchasing and redeeming gallons for an established amount and avoid experiencing market fluctuations themselves. Verona says the company doesn't plan to make money on gas, but rather from the annual membership fee (about $30), the interest float on the money that is paid before the gas is redeemed, and advertising on its website.
It looks tempting on the surface, what with fuel prices hitting an all time high everyday. People want relief and want it quickly. However what bothers me is the very volatility of the stock market itself. Obviously this is a question that comes to mind sooner of later and here's what they say :
Of course, gas prices could come down, which could turn any of these investment ideas into losing propositions. As with all investments consumers need to be prepared to stomach volatility.
If prices do indeed fall, then what will happen to MyGallons.com customers' prepurchased gallons? MyGallons says most people will simply hold on to them until prices go back up again.
But what if prices are currently at their peak and don't go up again? They say that's unlikely. "Very few analysts expect prices to come down...because current demand is increasing, while supply has stayed steady. We're talking years, if not decades, before [proposed] solutions have any impact. In the interim, prices should continue to rise," Verona says. He adds that if customers opt to drop out of the program, they can get a refund for their purchased gallons.
Now if rising fuel prices hasn't already given you a scare, that last statement should. At the time of writing this post, oil prices have reached an all-time high of $144.00++. At the rate that it is increasing, it's more than likely we'll see it touch $200 by the end of 2008.
When (optimistically, I should say "IF") that happens, I'd say MyGallons.com is going to be a very popular website indeed and we'll see many similar services being set up in the near future.
For more answers to your questions about how this system works, visit MyGallons' FAQ page.