Hedging diesel fuel.

[PhillipM]

I was thinking about the ever rising price of fuel and figured the best thing to do is buy it when it's low and if the market dips, buy some more. A local fuel wholesaler will bring a pump and 1000 gallon tank with spill containment box (for lack of better term).

Has anyone figured out a cost / benefit for this?

[Guerilla Signs]

I have worked for four oil companies over the years and the last position I held was fuel manager. There are a few things you need to consider. How much do you use. Do you need that money you are going to tie up for that amount of time and would it make you more if you invested in other things to do with your business. Most of the time you can buy it for the same or a little better price at the station over time. The station buys 8000 at a time so cost is significantly less to get it there. We always told our customers to weigh the extra cost verses the convenience of having it on site.

You also need to figure how long it will take you to use the diesel. Diesel can have a form of algae that feeds on the water that can condense on the inside of the tank. When the algae grows it can stop up filters and mess up injectors. We never suggested someone get more than they would use in three months.

As far as hedging for cost purposes it is always a gamble. Fuel market is more volatile than the stock market due mainly to world politics that no one has enough time to figure out and make a living.

Hope this helps with your decision.