Gas prices falling...

That's an option, not a futures contract.

wrote in message
ups.com...

Jim Burns wrote:
Kind of like the stock market, all on emotion.

I agree. In theory, if you get "caught" owning a futures contract when
it
closes, you can be forced to take delivery of the actual product. You
can
also be forced to deliver the actual product.

That is not true. Here is an example of what a future is:

Suppose you and I were neighbors. You pay me $3 if I agree to
pay you the price posted at the local gas station for regular at 9
AM tomorrow.

A future is nothing more than a bet on the future price in the
spot market.

If futures traders were forced
to own facilities to accommodate delivery of the underlying product, or
forced to own the product before selling a futures contract, there would
be
a LOT less speculation.

Jim

Sorry, back up.... I misread your answer...

You're correct... but say I pay you $3 per gallon for a September contract
that climbs to $4 before it settles and goes off the board. I now own $3
gas but the market is $4 and you owe me either the gas or the price of the
contract on the contract due date. I may want the gas and you will have the
obligation to deliver it to the contract location.

My point is that if neither of us have the facilities to handle the fuel,
neither of us should be in the fuel business.
Jim

"Jim Burns" wrote in message
...
That's an option, not a futures contract.

wrote in message
ups.com...

Jim Burns wrote:
Kind of like the stock market, all on emotion.

I agree. In theory, if you get "caught" owning a futures contract
when
it
closes, you can be forced to take delivery of the actual product. You
can
also be forced to deliver the actual product.

That is not true. Here is an example of what a future is:

Suppose you and I were neighbors. You pay me $3 if I agree to
pay you the price posted at the local gas station for regular at 9
AM tomorrow.

A future is nothing more than a bet on the future price in the
spot market.

If futures traders were forced
to own facilities to accommodate delivery of the underlying product,
or
forced to own the product before selling a futures contract, there
would
be
a LOT less speculation.

Jim

("Dylan Smith" wrote)
What's the fuel for cars called in the US? This is all rather addling...

By the normal populace, 'gas', which is short for 'gasoline'. By the
aviation community, car fuel is called 'mogas'.


'mogas' = motor gas

For car drivers, in the USA:
* They're called gas stations, or filling stations.
* When filling up our cars, we say "the gas pump."
* (Sometimes the term fuel pumps is used - mostly by truckers and at
industrial sites)
* Fuel pumps are the hardware inside the car's gas tanks.
* The red, portable, 5 gallon plastic container is called a gas can.
* Cars have gas caps.
* We call it gas mileage or fuel mileage = mpg


Montblack

Jim Burns wrote:
Sorry, back up.... I misread your answer...

You're correct... but say I pay you $3 per gallon for a September contract
that climbs to $4 before it settles and goes off the board. I now own $3
gas but the market is $4 and you owe me either the gas or the price of the
contract on the contract due date. I may want the gas and you will have the
obligation to deliver it to the contract location.

Not true. A future is just a bet on the price as I described. It is
the case that the payment may be made in kind if both parties agree.
But there is not obligation make an in kind transaction on either
party.

A consumer buys futures to insure a particular price, not actual
delivery of oil. They have to buy oil directly or indirectly from the
spot market.


My point is that if neither of us have the facilities to handle the fuel,
neither of us should be in the fuel business.
Jim

"Jim Burns" wrote in message
...
That's an option, not a futures contract.

wrote in message
ups.com...

Jim Burns wrote:
Kind of like the stock market, all on emotion.

I agree. In theory, if you get "caught" owning a futures contract
when
it
closes, you can be forced to take delivery of the actual product. You
can
also be forced to deliver the actual product.

That is not true. Here is an example of what a future is:

Suppose you and I were neighbors. You pay me $3 if I agree to
pay you the price posted at the local gas station for regular at 9
AM tomorrow.

A future is nothing more than a bet on the future price in the
spot market.

If futures traders were forced
to own facilities to accommodate delivery of the underlying product,
or
forced to own the product before selling a futures contract, there
would
be
a LOT less speculation.

Jim

In the vast majority of situations delivery never takes place and people do
not buy the product using futures. However, I'll throw three instances at
you that I have direct experience with using futures to both market an
actual crop and purchase actual commodities.

Selling corn by committing to a futures contract through a commodity broker
delivered to a terminal on a specific date.

Buying fertilizers, mostly nitrogens, sometimes phosphates, through a dealer
who purchases a futures contract on our behalf with a demand delivery
notification at a certain date.

Buying liquid propane, again through a dealer, who purchases a futures
contract through a broker with demand delivery for specified dates.

The fuel dealers that have adequate storage will also do the same. Usually
you have to commit to 5 semi loads, but they will buy a contract for you,
demand delivery, then inventory the fuel. You pay the contract price, plus
brokerage, plus storage. The larger dairy farms nearby also purchase corn
in this manner.

You're absolutely correct about using futures to lock in the price at a
certain date, however we use it to guarantee delivery at that price when
many of the wholesalers will not step in an guarantee price or availability,
or may not have storage available when we need product.

Jim

wrote in message
oups.com...

Jim Burns wrote:
Sorry, back up.... I misread your answer...

You're correct... but say I pay you $3 per gallon for a September
contract
that climbs to $4 before it settles and goes off the board. I now own
$3
gas but the market is $4 and you owe me either the gas or the price of
the
contract on the contract due date. I may want the gas and you will have
the
obligation to deliver it to the contract location.

Not true. A future is just a bet on the price as I described. It is
the case that the payment may be made in kind if both parties agree.
But there is not obligation make an in kind transaction on either
party.

A consumer buys futures to insure a particular price, not actual
delivery of oil. They have to buy oil directly or indirectly from the
spot market.


My point is that if neither of us have the facilities to handle the
fuel,
neither of us should be in the fuel business.
Jim

"Jim Burns" wrote in message
...
That's an option, not a futures contract.

wrote in message
ups.com...

Jim Burns wrote:
Kind of like the stock market, all on emotion.

I agree. In theory, if you get "caught" owning a futures contract
when
it
closes, you can be forced to take delivery of the actual product.
You
can
also be forced to deliver the actual product.

That is not true. Here is an example of what a future is:

Suppose you and I were neighbors. You pay me $3 if I agree to
pay you the price posted at the local gas station for regular at 9
AM tomorrow.

A future is nothing more than a bet on the future price in the
spot market.

If futures traders were forced
to own facilities to accommodate delivery of the underlying
product,
or
forced to own the product before selling a futures contract, there
would
be
a LOT less speculation.

Jim

wrote:

What's the fuel for cars called in the US?



Gas.

("Jim Burns" wrote)
Two weeks ago, the very day of the London terror threat announcement,
September Unleaded gas futures dropped 18 cents per gallon so I jumped and
bought 2 semi loads. I paid $2.789 which includes all of the fed and
state
taxes. Yesterday, the futures dropped 5-6 cents to close 14 cents lower
than the close the day 2 weeks ago... So I figure, time to buy again! I
had
room for one more semi load. I had to pay $2.762. Current NYMEX Sept
futures are $1.845 per gallon, the difference is basis, freight, and tax.

While the futures dropped 14 cents during the past two weeks, basis has
gotten very expensive and terminal prices only dropped 2.7 cents.


So, how does this all shake out for you?

How many gallons is a "semi" load?

"Room for one more semi load" means what, on your end - a physical or a
fiscal cap?

Curious.

What % of fuel use is:

Airline fuel?
Auto?
Trucks?
Other?
Heating oil?
Power plants?
Strategic reserves?

Thanks.


Montblack

Jim Burns wrote:
In the vast majority of situations delivery never takes place and people do
not buy the product using futures. However, I'll throw three instances at
you that I have direct experience with using futures to both market an
actual crop and purchase actual commodities.

Selling corn by committing to a futures contract through a commodity broker
delivered to a terminal on a specific date.

Buying fertilizers, mostly nitrogens, sometimes phosphates, through a dealer
who purchases a futures contract on our behalf with a demand delivery
notification at a certain date.

Buying liquid propane, again through a dealer, who purchases a futures
contract through a broker with demand delivery for specified dates.

Well, if these futures work like oil futures all you can demand is cash
equal to the spot market price on the closing date.

It is true that the you can get a barrel of oil with a future for a
barrel of oil on the closing date because the value of the future is
set exactly to the market price of a barrel of oil in the closing date.
If no oil was available at any price then you have the consolation of
knowing that the future that you are holding is worth an infinite
amount of money. But, in that situation, as a practical matter, its
value is not infinite, of course. It is only worth the liability value
of the guy or firm who sold you the future. I'm not sure if the
liability value includes the guy or firm's value in bankrupcy or if it
is limited in some other fashion.

I suppose if the guy had a barrel of oil and the price of oil shot off
the charts, then the guy would give you his barrrel of oil! But his
obligation is just to give you the market price of that barrel.


The fuel dealers that have adequate storage will also do the same. Usually
you have to commit to 5 semi loads, but they will buy a contract for you,
demand delivery, then inventory the fuel. You pay the contract price, plus
brokerage, plus storage. The larger dairy farms nearby also purchase corn
in this manner.

You're absolutely correct about using futures to lock in the price at a
certain date, however we use it to guarantee delivery at that price when
many of the wholesalers will not step in an guarantee price or availability,
or may not have storage available when we need product.

Jim

wrote in message
oups.com...

Jim Burns wrote:
Sorry, back up.... I misread your answer...

You're correct... but say I pay you $3 per gallon for a September
contract
that climbs to $4 before it settles and goes off the board. I now own
$3
gas but the market is $4 and you owe me either the gas or the price of
the
contract on the contract due date. I may want the gas and you will have
the
obligation to deliver it to the contract location.

Not true. A future is just a bet on the price as I described. It is
the case that the payment may be made in kind if both parties agree.
But there is not obligation make an in kind transaction on either
party.

A consumer buys futures to insure a particular price, not actual
delivery of oil. They have to buy oil directly or indirectly from the
spot market.


My point is that if neither of us have the facilities to handle the
fuel,
neither of us should be in the fuel business.
Jim

"Jim Burns" wrote in message
...
That's an option, not a futures contract.

wrote in message
ups.com...

Jim Burns wrote:
Kind of like the stock market, all on emotion.

I agree. In theory, if you get "caught" owning a futures contract
when
it
closes, you can be forced to take delivery of the actual product.
You
can
also be forced to deliver the actual product.

That is not true. Here is an example of what a future is:

Suppose you and I were neighbors. You pay me $3 if I agree to
pay you the price posted at the local gas station for regular at 9
AM tomorrow.

A future is nothing more than a bet on the future price in the
spot market.

If futures traders were forced
to own facilities to accommodate delivery of the underlying
product,
or
forced to own the product before selling a futures contract, there
would
be
a LOT less speculation.

Jim

Current thoughts are to keep your tanks full, filling when you have room,
cost averaging downward.

I was forced to buy a few loads this summer at the highest prices. As
prices drifted down, I kept waiting, letting our tanks get pretty empty.

We have storage for 35,000 gallons. A semi load is 8500 gallons, but I can
split the load between products depending on the truck. You can do the
math, but the load I got yesterday cost just over $23k. When we're busy we
use a load of diesel fuel every 2-3 weeks, but gasoline is much slower,
about a load per month spit between 89NL and 89+lead.

One more load was a physical cap. Our gas tanks are full, diesel 3/4.

Our LP tank is 30,000 gallons and a semi load of LP is about 9500 gallons.
Main use of LP is for drying corn, drying potatoes after washing, and
heating buildings. Thankfully we didn't plant much corn, so I don't have to
worry about filling that tank every 7-10 days during harvest.

You've got a great question about the % of each type of fuel consumed. I
hope somebody finds that answer it would be very interesting.
Jim

Without finding a better definition, wikipedia offers this:
a.. 'Physical delivery' - the amount specified of the underlying asset of
the contract is delivered by the seller of the contract to the exchange, and
by the exchange to the buyers of the contract. Physical delivery is common
with commodities and bonds. In practice, it occurs only on a minority of
contracts. Most are cancelled out by purchasing a covering position - that
is, buying a contract to cancel out an earlier sale (covering a short), or
selling a contract to liquidate an earlier purchase (covering a long).

Here's the nymex light sweet crude details, including the delivery point
(Cushing, OK) quantity (1,000 barrels) and delivery methods. It is a
physical delivery contract.

It's interesting that if a delivery purchase contract can not be matched
with a delivery sale contract, that the exchange randomly picks, ususally
from the largest long position holder, a contract to force delivery to the
buyer.

Jim