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Comparing oil price to fuel price Comparing oil price to fuel price

07-07-2009 , 06:55 PM
I think it was Bills who mentioned that oil ETFs were a good hedge against rising fuel prices as when one goes up the other rises also. I'm trying to learn how to analyse investment opportunities so this is my first attempt.

I have the price of Brent crude oil in dollars, inflation adjusted, from 1988 in yearly averages. I also have the pump prices of UK unleaded and diesel, non-inflation adjusted, in pound sterling. Do I need to adjust this pound sterling price according to inflation? Do I also need to find the currency exchange rate for US$ to Pound Sterling?

My chart looks like this.

Year/Unleaded/Diesel/Brent Crude/Ratio A/Ratio B

Ratio A and B are the price of UK fuel divided by the price of Brent Crude. I will then look at the standard deviation of these numbers to find out if buying oil ETFs is a good hedge against rising oil prices.

If anyone wants me to do this for US oil prices I can do that too. I consider this work experience of sorts and I need that right now.

And lol at Americans complaining about gas prices
Comparing oil price to fuel price Quote
07-07-2009 , 09:19 PM
It wouldn't be a perfect hedge because there's oil processing and refining technical details, aka timing issues. Futures specualtion also effects everything and depending on what the underlying ETF holds a majority of will determine how far it moves vs petrol.

So it'll work somewhat over the long run, but it won't track perfectly and I wouldn't be surprised to see weirdness. ETFs are weird anyway in my books.
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07-08-2009 , 07:39 AM
What would you suggest someone invest in if they wish to hedge against rising fuel prices?
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07-08-2009 , 01:28 PM
You probly want to do some research on the crack spread..
If your talking about hedging your own unleaded consumption, once your not talking about actually buying/selling gasoline futures the other variables will probly kill off any hedge you have on. Not to mention 1 contract will be far too much gasoline compared to what you will use in the time frame so the whole idea is a bit pointless.
Comparing oil price to fuel price Quote

      
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