So much for Obama’s Strategic Petroleum Reserve move!

As PumpGirl noted, oil prices moved higher, perhaps in line with the (modestly) positive economic news from the ADP jobs report.

Meanwhile, gasoline futures at the NYMEX spiked higher by almost thirteen cents! The entire forward curve for the next year is up by more than ten cents. I looked at the bottom month in the next year and the implied pump price is about $3.50. The average is significantly higher.

For managers who are planning ahead, the window of opportunity to lock in prices may not be open for long.

Oil rose over $81/barrel – highest for the year. US supplies declined more than forecast. Dollar dropped.

analyst forecasts, in the week ended Oct. 16, according to the report.

“As long as there’s pressure on the U.S. dollar, there will be upward movement in oil,” said Rachel Ziemba, an analyst at RGE Monitor, an economic research company in New York. “We could see even greater climbs higher, which will put us even further out of whack from the fundamentals.”

Stocks, ExxonMobil and Chevron, are up big time.

Is oil the new hedging tool?

Professor David Enke of the University of Tulsa is an expert on risk management issues. At his excellent site he has pointed out how several airlines have experienced earnings hits from their hedging decisions.

Here is his key point:

So while hedging can help a company “lock-in” to a specific cost structure, if others within the same industry are not hedged, and those companies have pricing power, the hedged company can expect to see higher swings in profit margins and earnings, and subsequently a more volatile stock price.

Put another way, a company can control costs, but not earnings. If every airline engaged in hedging, then all customers would be protected against rising fuel prices, but would also exposed to falling prices.

Meanwhile, there are other hedging strategies. Our own approach differs depending upon the company. For some, locking in a current price is the best move. For others, there should be some protection against falling prices.

It is clear that the airlines did not use the most sophisticated hedging strategies.

Sunday night, Steve Kroft of 60 Minutes, presented a story intended to enlighten the TV audience about what exactly happened with those crazy oil prices.

Watch CBS Videos Online

Eddy Elfenbein of Crossing Wall Street wrote an excellent analysis of the piece for those who live in the real world.

According to 60 Minutes, the surge in oil prices was due to…(wait for it)…deregulation! Yes, it seems that “hedge funds” (cue Darth Vader’s theme) and “speculators” were buying oil in order to make money. If you just toss around these scare words long enough, people will think it makes sense. Somehow this was all due to deregulation. Of course, oil is traded all over the world, but logic doesn’t play a major role in this story.

It’s definitely worth your time to read the whole article.

60 Minutes seems to diss the idea of supply and demand having any influence on oil prices, but deregulation and Enron are prominently featured. Smallpox, anthrax anyone?

Here’s another look from Todd Sullivan, featured on Seeking Alpha. His cribb notes:

A Wall St. cabal controls oil markets that Enron set up to manipulate prices.

In his analysis, Sullivan uses the actual EIA data to set the record straight. (Read the whole article. Great charts and graphs.)

Now, reset your TiVo season pass for this program.

Doug Miller, at the Beyond Right Field blog thinks oil prices are going back up, and he has a plan to deal with that.

We can tell right off that he’s definitely a numbers kind of guy. First he figured out how many gal. of gas the family uses each month (company cars, but a boat with a tank 10X larger than our personal car). Approx. 160 gal/mo is the national ave. for the standard family with 2.3 kids.

Miller has decided he could possibly trade the ETF for crude oil prices, USO, as a hedge for his personal gas use.

At 160 gallons a month at $1.50 per gallon that figures out to be in round figures $2,900 for the average family for a years worth of gasoline at today’s prices. So, what do you do? You go to your brokerage account and you buy $2,900 worth of USO, then every month you sell 1/12th of your holdings to pay for that months gas. If gasoline goes up, so should USO and that increase should cover the difference in what you are paying at the pump. Beware, you will have short term capitol gains tax consequences and brokerage fees to account for, an could increase your holdings in USO to help hedge some of that, but if oil does go to $100 a barrel again, I think the last thing you will be worried about is paying $6 a month brokerage fees. Also beware, oil could go lower. It wasn’t that many years ago that crude was trading for $10 a barrel, and we could very likely be headed in that direction again. If that is the case, you could actually lose money, possibly your whole investment if USO goes to zero as the ETF doesn’t track oil dollar for dollar. There is also some risk of time erosion with USO as there is a contango in the oil market right now.

He hasn’t stepped up to the plate yet. Looks like one of those “Do Not Attempt This At Home” kind of things to us.