MyGallons.com is a new service that allows you to prepay for gasoline, “locking in today’s prices.” As more an more people come to the seemingly inevitable conclusion that gas prices can only continue to rise, it’s no surprise that a company came along to take advantage of this line of thinking. I seem to remember another item that could only go up and up in price: real estate. Prepaying for gas at today’s prices seems so savvy because the thought of a decline in gas prices is so unbelievable to most people today.
Obviously if gas prices start to fall, mygallons.com is going to start making more and more of a profit as people pay more than the market price for gas. Prepaying only locks in today’s “low prices” if prices continue to climb. If they fall, then prepaying is locking in today’s “high prices.” I suspect that mygallons.com is hedged for either move in the market. Since their public business model only seems to profit with falling prices, they are probably using some of the money you give them to buy oil futures expecting price increases. If that’s true, they stand to profit either way. As you start to see the benefits of mygallons.com as prices rise, you’ll probably buy gas from them in larger quantities. Buying even 100 gallons would take me at least a month to use up. What are gas prices going to be like in a month? Who knows.
Until I spend my gallons, I’ve basically loaned mygallons.com my money, which they can use to hedge against the change in prices. If prices start to fall I could either use my gallons and take a loss, or let mygallons.com keep using my money indefinitely. The best thing that could probably happen for them would be prices to rise for a while and have people start taking on massive balances of gallons. Then if prices started to decline and remain low for a while, the profits would start to roll in. If you prepaid for 100 gallons of gas at $4, what are you going to do if it goes back down to $3.50? When it’s time to fill your truck you can either shell out more money or just take gallons (”for free”) from your account. I fear that too many people will use this tactic and end up costing themselves more. If you run a balance on the credit card used to fund your mygallons.com account, then the interest you pay WILL cost you money compared to your account which COULD save you money.
The annual membership fee of $29.99 for mygallons.com is guaranteed, but that guarantee is basically worthless. Your money will only get refunded if you never get a better deal over the course of a year. Are you really going to ever see that situation? Even if the card loses you money on all but one transaction, you’d still pay the membership fee. If prices decline and you never use your card throughout the year, the money spent on your gallons could have been earning you interest or appreciating in some other investment, so you lose either way.
If you were really so good at predicting future oil prices, you’d probably be using your money to speculate in oil futures rather than in prepaid gas cards. If your predictive skills are limited to “gas is going up forever”, it seems you haven’t learned from the housing bubble. Gas prices may indeed continue to rise, but without more sophisticated rationale as to why that happens, leave the speculation to the professions or be prepared to be taken advantage of once again.
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July 1st, 2008 at 4:10 pm
Does anyone do homework anymore before writing or publishing a story? Looks like the answer is NO.
Here are the problems I see with mygallons.com site.
They state:
2000 members
Soft Launch in January
Problems:
Registered Domain in March
Registered company in April
Got SSL Certificate 2 weeks ago (Not possible to run credit cards without it)
Have testimonials on their site (Not possible since no site, no members and it takes 1-6 weeks to get card)
Site went live last week
Conclusion:
Not too good. They are not being honest and truthful. Make your own conclusion. Do I feel safe sending them my hard earned dollars, absolutely NOT
July 1st, 2008 at 4:14 pm
I’ve got news for you. Gas is going up - forever. In the long term, that is (Unless the world economy implodes in upon itself and destroys price, in which case you have more to worry about than cheap gas).
Of course, gas going up from here on out is a no-brainer for petroleum geologists and people familiar with peak oil.
July 1st, 2008 at 4:39 pm
@Ironman - Thanks for the added analysis. I was trying to say that even though their site seems to have good intentions, they are in the business to make money and will take steps to do that regardless of gas prices. Your comments make me question them as a business and indicate they are even worse than they seem.
@Golgo13 - Yes, gas will go up in the long run. No one argues with that. The point here is that long term trends shouldn’t be hedged with short term solutions. The recent testimony about how limiting speculation could cause gas prices to drop to $2 a gallon shows exactly the type of risk with short term solutions. There are better ways to deal with potential price increases than locking up your money in prepaid gas which may or may not save you money.
July 2nd, 2008 at 10:19 am
There’s a 1.95$ fee for refilling the card, and the annual fee climbs to 39.95$ if you opt to fill the card manually. I was all giddy back when PriceLine offered savings on gas, but that evaporated quite fast. I wonder what other fees might pop-up on this card. If it’s anything like pre-paid credit cards, it’s not worth it.
July 2nd, 2008 at 10:55 pm
Re: “limiting speculation could cause gas prices to drop to $2 a gallon”
If speculation is driving prices, where is the oil that didn’t get sold because the price was too high? It’s nonsense. supply and demand are driving price.
The fact is that the oil ’speculators’ keep the price in line with supply and demand. High prices for fuels is better than no fuel available at any price.
If the futures markets are shut down, you will not have high prices, but shortages, which is much worse.
July 3rd, 2008 at 7:37 am
@Golgo13 - There is a lot of debate about the effects of speculation and I was just providing that as one example of the potential for volatility in gas prices. Surely there are many other sources of volatility as well. Even the main speaker in the video you provided conceded that point.
Even if price was totally determined by supply and demand you can see how high prices cause people to change their habits, buy more efficient cars, etc helping to lower demand and bring prices back down. So as counter-intuitive as it seems high prices may cause lower prices in the future.
One final point about current prices: crude was trading around $60 a little over a year ago. What fundamental changes have occurred since that time to warrant a doubling of this price. Has demand doubled? Has capacity been halved? It may be that the old price was artificially low, but couldn’t it also be that the current craze over high prices is helping to keep the price high.
Before we get too deep into the discussion of the reasons for our situation and where prices are heading, let’s bring things back to the topic of this post - The average consumer is not in a position to predict future gasoline prices. Even the expects disagree. So why tie up your money in prepaid gas when you could be using that money to profit in other ways at less risk?
July 3rd, 2008 at 9:27 am
Read the comments on the LA Times Blog. Looks like all of the details and an in depth investigation took place and details are posted in link below. The outlook for mygallons isn’t looking to good. Looks like a scam.
http://travel.latimes.com/daily-deal-blog/index.php/mygallonscom-july-1–2146/
July 3rd, 2008 at 2:11 pm
Under their terms and conditions, second to last paragraph of Disclaimers:…
“Under no circumstances shall we have any obligation to refund any monies actually paid by you for the Service.” =( Fail.
July 3rd, 2008 at 5:56 pm
I might be willing to risk a few bucks if I knew of some people successfully using the card, since I’m the simple & greedy type.
Even if prices drop, I see covering cost during cycle swings if you simply use the card when gas goes to a minimum % over what you purchased your gallons. That, of course, assumes it will be before the next annual fee and MY Gallons doesn’t go defunct. One red flag not previously mentioned, however, is found within the agreement.
“2.5.9 MYGALLONS in its sole discretion reserves the right to limit the amount of the MYGALLONS Services you purchase at any one time or which may be held at any time in your Personal Account. MYGALLONS in it sole discretion may limit your maximum fuel charge per day and your ability to redeem the MYGALLONS Services within a certain time frame from the date of your pre-purchase, the date of expiration of your Subscription membership or any other date.”
Even if the card “works”, I don’t see what prevents a daily limitation of usage to make the savings meaningless in contrast to the annual fee. I won’t be first in line to sign-up.
July 5th, 2008 at 3:18 pm
The bankruptcy and previous corporations of the owner who wants you to buy
prepaid gas cards at mygallons.com. Escrow accounts are not protected from
bankruptcy proceedings.
http://www.webofdeception.com
July 9th, 2008 at 1:06 pm
Have to figure on how many gallons you will use too . Going by the 39.95 fee adds .3995 cents per gallon to the 1st 100 gal , 500 gal adds .0799 so you have to figure that in as well as interest on credit card .