How To Hedge Your Fuel Like Southwest

Few people know that there are ways that you can hedge fuel prices as an individual, similar to how Southwest Airlines hedges oil. Southwest has been successful at hedging their fuel by buying contracts that give them the option to buy fuel at a fixed price in the future. Here are a few ways that you can implement a similar strategy:

My Gallons

Mygallons.com is a new site that lets anybody buy credits for fuel at today’s prices. After you pay an annual membership fee of $29.95 to 39.95 you get a debit-type card that you could use at 95 percent of U.S. filling stations according to the site. However, soon after MyGallons launched their service, their deal with the payment processing network fell apart, so the cards they issued are not accepted anywhere until MyGallons can find a new partner. While this illustrates the risk of being an early adopter, look for MyGallons and similar companies such as FuelBankUSA to offer such services in the coming months. I wouldn’t buy too many credits, though. If MyGallons goes under, they may not be required to refund your deposits.

Fuel Banks

Fuel banks allow you to purchase reserves of gasoline on the commodities market. First Fuel Bank in St.Cloud, Minn., has been around since 1982, when gasoline only cost about $1 per gallon. People who bought in as recently as 1997 could still be paying less than $1 per gallon. Unfortunately, you have to live in or near St.Cloud Minnesota to take advantage of this, since their pre-paid card is good at only six locations.

U.S. Oil Fund ETF

Another tactic to hedge fuel is to buy stock in the U.S. oil fund ETF (exchange traded fund) which is available on the American Stock Exchange (ticker symbol: USO). The objective of the fund is to track with the movement in price of crude oil, although it doesn't always achieve this objective. If the USO does follow the price of crude oil, then you can profit as everyone else suffers. In addition to the uncertainty that the USO will track with crude oil market prices, changes in crude prices don’t necessarily match fluctuations at the gas pump. Further, according to Fox News, the USO fund requires that you pay taxes on gains annually, even if you don’t sell.

There are many more ways to protect yourself if you think fuel prices will continue to rise. For instance, you could convert to ethanol by purchasing a home ethanol distillery such as the EFuel100 and stockpile sugar or corn in your backyard. You could invest in solar panels and drive a hybrid. And, of course, you can move within walking or biking distance of work so you don’t need to use as much fuel. If you feel fuel prices will drop in the future, you can be like Glen Peck from Annapolis, Md. He has two Hummers parked in his driveway and is a board member of a group called The Hummer Club, according to the Associated Press.