Follow-up: How To Short Sell The Oil Companies

In a previous article, I wrote about how we can collectively work against the oil companies to help improve gasoline prices.  (See the previous article before reading further if you haven't read it already.  Then come back to this article.) We should keep doing that, as now traders and firms like Goldman Sachs are seeing that demand might not be meeting with supply, and oil has been off its highs so far this week.  Keep it up America!

In full disclosure, I am not currently short on oil.  In fact, I am actually long DBO ETFs in one of my portfolios, and have no plans to change my position anytime soon.  I think energy long term is a good play.  But gasoline prices are too high, and unsustainable (in my view) at these levels, and I believe could impact the economy come summer time (like we saw in the perfect market storm of 2008).  I do have another interest in seeing fuel prices decrease, and that is I need to book some flights to Hawaii soon and would love to see some benefits in reduced airfare from lower aviation fuel prices.  Long shot, I know, but I can hope!

I also have seen other researchers write similar things about other commodities, such as food related goods.  Below is what Smartmoney.com had to say on the topic of stockpiling (which is what are doing in effect when we fill our tanks to the brim instead of just filling with a half tank more frequently).

Consider this example.  There are over an estimated 247 million registered vehicles in the US.  The average tank size is around 20 gallons.  That means, if we are keeping our tanks above half full, we are storing between 4.94 billion (at full) and 2.47 billion (at half full) gallons of gasoline, at our cost, not the oil companies' cost.  We are storing billions of gallons of gasoline for FREE, so that we can drive around town for a week without filling up (even though most cities and towns have a plethora of fueling stations along the routes we drive).  Imagine what would happen if we were storing a half tank or less of gasoline (less than or equal to 2.47 billion).  We would immediately stick almost 2.5 billion gallons of product back on the oil companies' "shelves", since their numbers are set to meet the demand at that rate of draw.  How's that for some perspective?

Smartmoney.com:
...

There's also an unintended consequence of stockpiling, says David Bell, a professor of marketing at the University of Pennsylvania's Wharton School of Business: You'll actually end up using more of what you've stockpiled than you would otherwise. In theory, doubling the number of soda cases bought would result in a supply that lasts twice as long, but it's more likely that you'll go through it faster, or simply be less frugal about its use with extra on hand. You could even end up throwing out food that expires, rejecting out-of-fashion items, or simply forgetting about the cans of corn stashed behind the hats and mittens in the basement.

Still, buying before prices rise can be smart – in small doses. Most supermarket and drugstore items go on sale just once every 10 to 12 weeks, says Teri Gault, founder of The Grocery Game. If you're loyal to a certain brand, buying extra when you spot a sale is smarter than paying full price the following week when you're actually out. On fashion, retailers sneak in bigger price increases on trend items because consumers can't easily monitor cost like they do for wardrobe staples such as trousers and T-shirts, says Tennant. Many of those items are available now at end-of-season clearances, and can be picked up for a song. And avoiding hyped-up eBay ( EBAY: 29.98*, -0.46, -1.51% ) prices on discontinued items by stocking up is usually a sound strategy, too.

Ultimately, the decision may come down to cash flow. If charging six months worth of dry goods means paying extra interest charges on credit card debt, it's not worth the savings, says Randy Allen, an associate dean for The Johnson School at Cornell University.

Read more: Will Stockpiling Save You Money? - SmartMoney.com http://www.smartmoney.com/spending/budgeting/will-stockpiling-save-you-money-1298583519761/#ixzz1Gm8Ox5Y4

Additional notes: When gasoline is sitting in your tank, it is evaporating.  Why pay out of your pocket just to let more droplets of gasoline disappear on your dime.  Make the oil companies pay that expense themselves by buying less gasoline at each fuel-up, which forces them to store more gasoline and worry about their own storage tanks' evaporation rates.  While many articles show that the evaporation rates are pretty negligible (less than 1 gallon per year at 60 degrees Fahrenheit), I still need to do some more research on what the rates are like when it is over 90 degrees like most of America is during the summer months.  Also, when liquids slosh around, there is more evaporation.  There are also arguments about cars that have evaporation collection systems which reuse gasoline that might help mitigate your losses.  Additionally, E10 or higher Ethanol gasoline is said to evaporate even more due to the alcohol content.


However, even if you are not benefiting from less evaporation, you may stand to benefit from increased gas mileage by not hauling around so much liquid in your tank.  As the power of your engine increases (4 cyl, V6, V8) the benefits decrease: meaning you'll see better gas mileage for half tanks in a 4 cyl than you will in a V8.  But remember, these are just added benefits, so if you don't receive these benefits because your car is bigger or has cool vapor catching gizmos, it doesn't matter.  The bigger benefit is short selling the oil companies, over-supplying them with excess inventory, by not filling up a full tank when you go to the pump.  They will soon see that they have too much gasoline product on hand and reduce the price to get rid of it.


If interested, you can read more on efficiencies here:


http://www.creditinfocenter.com/wordpress/2008/07/24/increase-mileage-gas-tank-full-or-half-empty/