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May 30, 2007

The Optimal Amount of Insurance


Our reading today took us to a speech made by current Fed Chairman Ben Bernanke, delivered back when he was a Fed Governor. As part of his analysis, he noted the following:

…it is rarely the case in economics that the optimal amount of insurance in any situation is zero.

Now Bernanke was not speaking about fuel hedging, but he could have been. It is as easy as one, two, three…

1. Surging fuel prices are a threat to the budgets of many businesses.
2. Insurance, in the form of simple hedging plans, is available.
3. There is an optimal amount of this insurance for each company….

…and that amount is not zero!

Fuel managers and CFO’s who do not yet have a hedging plan sometimes worry that they are “too late” to act. Bernanke’s sound economic principle would suggest doing something ….just get started. It is not the manager’s job to guess the future direction of energy prices any more than it would be to guess if and when there might be a fire.

Filed under:Ask Jeff,Fleet Managers,Hedging | by OldProf @ 6:39 pm | 

May 25, 2007

Memorial Day Weekend


Remember the true meaning of Memorial Day? Now, it’s hop in your car and take a 3-day vacation.

Tom Kloza of Speaking of Oil discusses how many $$$ you are going to need to fill the tank, and predicts a moderation of prices between now and “The Fourth.”

You know your wallet is taking a beating, but just take a look at this info.

In any case, here’s a scorecard for measuring this Memorial Day Friday versus previous kick-offs to the holiday weekend this decade. You’ll note that we are collectively spending more than twice as much on fuel as we paid as recently as 2001, 2002, and 2003, and of course for all of the prior years that aren’t represented in my quick and somewhat crude chart. We’ll probably use more than 400-million gal of gasoline perhaps today and Monday, compared with about 380-million gal on a midwinter getaway day.


Year Retail Price Expense per Day

—— ————— ——————–

Current $3.225 gal $1.28-billion

2006 $2.862 gal $1.13-billion

2005 $2.109 gal $837.9-million

2004 $2.051 gal $797.3-million

2003 $1.494 gal $583.6-million

2002 $1.403 gal $511.8-million

2001 $1.700 gal $590.3-million

Filed under:Fuel Price Trends | by Pump Girl @ 11:37 am | 

May 23, 2007

Hot Potato, Hot Potato


Our RSS reader pointed us to a post by Prof. Goose on The Oil Drum that’s apparently been reprinted a couple of times, and is relevant once again. Who is actually the villian in the “High Price of Oil” story? It’s complicated.

Here is the path oil takes:

  • Oil companies take it out of the ground, and sell to
  • Refiners, who process it and sell to
  • Distributors, kind of wholesalers who sell to
  • Retailers, who sell to YOU.
  • Now which one is responsible? Click on Prof. Goose’s post for an educational deconstruction.

    Filed under:Causes and Solutions,Fuel Price Trends,Hedging,Price Shocks | by Pump Girl @ 6:53 pm | 

    May 22, 2007



    driving_with_Sears_Tower_in_background.jpgThe highest gasoline prices in the nation are right in our back yard. That would be the state of Illinois (ave. price $3.457), and Chicago in particular (ave. price $3.568).

    What is the explanation, you may ask? Low inventories due partly to unexpected refinery shut-downs for a repairs during a time they would normally be building inventory for summer driving season. The fire and power failure at BP‘s Whiting, IN refinery – a major supplier of Chicago’s customized gas for the summer – was really bad news.

    On top of all that, Chicago has sky-high taxes on gasoline.

    What to do? The usual: take public transportation, carpool, walk, bike. Lawmakers are mumbling about doing “something” for tax relief on gasoline.

    Or, fill ‘er up and give up food.

    Filed under:Fuel Price Trends,Hedging,Price Shocks | by Pump Girl @ 11:16 am | 

    May 18, 2007

    Sooner Than You Think


    We just came across a very interesting article on The Oil Drum about Ecological Footprint, Energy Consumption and the Looming Collapse. Professor Francois Cellier uses modeling and simulation, and explains in everyday language (mostly) how population growth, resource depletion are sending us on our way to Global Collapse.

    He concludes:

    In order to avoid the collapse, we need to get out of the exponential growth pattern as fast as we can. We ought to behave as if fossil fuels had already become essentially unavailable, using this precious commodity only for purposes where they are absolutely essential and to help us create a sustainable energy infrastructure for the future…..

    By accepting the transition now, we will make it much easier, because as of now, the fossil fuels are still available to help us cheat. Where a hard transition is too painful, we can make it a soft transition. Where fossil fuels can help us create better living conditions for the future, we can still use them. Finally, by weaning us off our addiction voluntarily now, we prolong the availability of the remaining resources substantially.

    It is a bitter medicine, no doubt.

    Can we understand its necessity? You bet!

    Will it happen? I see no inkling of it.

    Just remember, while we weren’t looking, somebody poked a rather large hole in our ozone. Time to get our house in order.

    Filed under:Causes and Solutions,Fuel Economy,Fuel Price Trends,Fumes | by Pump Girl @ 7:48 pm |