2007 5
The Credit Card that Fixes your Price at the Pump
Published by MartinVarsavsky.net in General with No Comments
I am in NYC now and thinking about the volatility of gasoline prices in the States I came up with an idea for a credit card that fixes the price that you will pay for gas for the next 5 years. The concept is that you would commit to buy a certain amount of liters at a certain fixed price for 5 years and with this credit card every time you go to a gas station you would pay this price at the pump and the credit card company would pay the rest or collect the rest from the gas stations. What this credit card would do is to bring to the average citizens the financial tools for hedging already available to large oil companies in the form of a credit card, an instrument that everyone is familiar with. Since I am too busy to develop this idea….I blog it. Maybe it exists already. If it does I apologize. I have not even had time to research it.
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Francesco Cardi on December 5, 2007 ·
The cost of hedging will be so high that the resulting price at the pump will result undigestable for 99% of the buyers.
And this without considering the overly complicated system that should be built inside the current standard credit card transaction. A very refined system of monetary corrections repasse in between the user, the shop, the bank having emetted the card and the hedge provider. A nightmare!
Antoin O Lachtnain on December 5, 2007 ·
Yup, the problem is consistent demand. However, it could work well for building heating or lighting. The heat and light up to a certain amount could be built into a lease for instance.
This article describes a similar scheme for gas for up to 2 months.
http://techdirt.com/articles/20070521/161651.shtml
There’s no particular reason for the hedge to have anything to do with a particular credit card transaction, unless the hedge was structured as an american-style option as suggested.
Credit cards are actually bad news for filling stations. The margins on gasoline at the US pump are too low and the credit card commissions too high as it is for this to make sense. As gas bills go up, credit cards are forming a greater proportion of the payments for gas, and that’s why it’s becoming an issue.
Hector on December 7, 2007 ·
First of all, why to stop with gas? why not to go on woth milk, eggs, meat and so on? The problem I see with the so called web 2.0 is that blind people are leading blind people…
at # 3, there is in Denmark something like that called payment “a-conto” where you pay an amount for the consumption and in case it is more it is added and returned if it is less
andres on December 7, 2007 ·
The problem would be if you commited to pay, lets say $3 per gallon and in 2 years time the price of the gallon goes down to $2 you will hate oil, your credit card and the man who invented it…
I’m not sure if individuals are a good target for this kind of contracts, and in this case, looks like individuals dont care about petro proce: every day is more expensive and every day there are more and more traffica jams everywhere…
Serge Lescouarnec on December 7, 2007 ·
Martin
Good idea
Hedging for the masses
If besides worrying about volatility you are in the spirit of giving, have you heard about Menu for Hope , an event I am taking part in, kickoff date, December 10.
It is an online Fundraiser benefiting the UN Food Programme involving bloggers the world over.
Take care
Serge
‘The French Guy from New Jersey’
Haim Ac on December 10, 2007 ·
My 2 cents:
No individual can pay in advance for months of gasoline, and I do not believe any institution would take the risk of committing to a gasoline price for long periods of time.
However,let’s see if this could work:
Step 1I’m at home and I need gasoline on my car, I would go to the web tonight, check the gas prices of the closest pumps located along the way from home to work. I would select the one that offers the best price (like in http://www.orangecountygasprices.com/ or gasprices.mapquest.com/)
Step 2In order to fix the price, I would pay online now , with my credit cad, or another online method. Maybe the credit card costs can be avoided somehow (debit cards? PayPal?)
Step 3 Tomorrow I would drive to the gas station and “collect my gasoline”. I could use my credit card as ID (like with the electronic tickets of the airlines companies).
I win because I lock the best price. The gas station wins selling gasoline in advance. And Martin wins if I am using FON.Could this work?Haim
swaption on December 16, 2007 ·
Problems:
1) You can buy Oil Futures in NYMEX as an individual and make the hedge.
2) It is risky for the issuer as the credit risk is significant (is more a loan than a credit card). You are committed to buy certain liters (assets) at certain price (liability). What happens with mortgages when house prices go down? Here you are the keys Mr. Bank. Same with this credit card.
3) Extremly complicated from a technological point of view, if you are paying X amount how many liters are there?
4) Moral hazard: You will no longer look for the cheapest gas station, the card will pay the extra cost, you can even think underworld agreement with the most expensive gas station in exchange for jollies, mars, or even a few bucks.
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Dario Cukier on December 5, 2007 ·
Cool! The only problem I see is that the use should be more or less uniform in time. Otherwise it becomes a type of American option (I can choose to use it all at once), which would be more expensive than just a set of futures contracts.