Like any commodity, the price of local gasoline is always moving up and down. Over the course of a year, however, there is a seasonal price pattern that repeats. Over the last +30 years, in general, the price of gasoline is at its high price point for the year on May 1st and is at its lowest price point October 1st.
One tactic to manage your gasoline budget is to set aside some of the money that you saved when gasoline was relatively cheap – August to December, so that you’ll have some extra money when gasoline is more expensive – February to July. This way, when the price of gas is straining your budget early summer then you’ll be able to partially offset this cost from savings when gasoline is relatively cheaper.
You could also get more sophisticated and start your own baby hedge account to manage your price risk as professional businesses do. For example, let’s say that you spend on average $3,000 per year in gasoline. If the price of gasoline rose by 10% then you’d need to find an extra $300 in your budget to cover this increase in cost. If you were to hedge your annual purchase, then the 10% increase or $300 would come from the profit from your hedge.
One way to do this is to open a brokerage account so that you can trade a gasoline security that trades just like a stock, the exchange ticker symbol for this is “UGA”. This security moves in price to closely match the price of gasoline futures contracts. The price chart above is the last 4 years of price moves of this security.
Now, if you were to purchase $3,000 of this security then you have fully hedged one year of your gasoline purchases. If the price of gasoline rises sharply then you will have a profit that you can use to supplement your gasoline budget. However, the price of gasoline also falls and you may have a loss on your hedge. If gasoline becomes cheaper, you will be using less of your spending money on gasoline and you could move this savings into your hedge account to purchase more of your hedge at a cheaper price so you will have a larger profit for the inevitable price increase. The price of gasoline will move up and down and you will add to your hedge or release profits from your hedge as these gyrations occur. You could try to time your gasoline hedge by purchasing only when the price is relatively low and selling some when it is relatively high; I drew a trend line in red to show some relative low prices.