Gas prices are currently near multi-year lows, if you’d like to “lock in” the relatively low current prices, you can, by taking a long position in gasoline
Gasoline (UJ/) now sits at $1.97, down almost 20% from this year’s high and only about $0.10 above the multi-year low it reached in September 2024. Falling oil & gas prices are not a positive development for energy companies and have helped keep the energy sector near the bottom of the DALI rankings for most of 2025. But they are a welcome development for consumers who are paying less at the pump.
There’s no way to know for certain whether energy prices will continue to decline. But, as drivers, almost all of us have inherent exposure to gas prices. So, if you’d prefer to go ahead and “lock in” the relatively low current prices, you can, by taking a long position in gasoline. If the price of gasoline rises, your increased expense at the pump will be offset by an increase in the value of your hedge and if gas prices decline, the decline in value of your hedge will be offset by the lower cost of filling your tank.
Capping Your Gas Exposure
In years past, the financial instruments tied to the price of gasoline were pretty much limited to futures, which were often inaccessible or impractical for the average investor. However, we now have a myriad of commodity-based ETFs, including the US Gasoline Fund (UGA), which tracks the futures market for gasoline, and offers us a relatively simple method for hedging gasoline exposure that is accessible to retail investors.
We first talked about how using ETFs to hedge against gas prices several years ago, however, the recent uptick in wholesale inflation has prompted a few requests from clients for an update on this technique, which provides a nice discussion point for clients as well as prospects. Regardless of whether the application of such a strategy actually makes sense for any given client, the conversation can only further your brand as an expert in your craft; and so we decided to revisit this topic today. We were reminded of a link a client forwarded to us a couple of years ago that we'll pass along; www.dqydj.net has a "How to Hedge Your Gas?" calculator that utilizes shares of UGA. That site could make your efforts a bit more scalable, but the math is hardly onerous on its own. Naturally the price you pay at the pump on your block has a few added variables above and beyond the price of gasoline futures (state gas taxes, local competition/markup, etc.), but assuming all else is equal, shares of UGA should be a good hedge against a client's gasoline price risk.
Again, there is no advanced math required to determine the exposure to UGA needed to effectively put a "locking gas cap" on a client's gasoline expenses. We'll walk thru it quickly: Let's say you drive 15,000 miles per year and your vehicle gets 25 miles per gallon. If gas prices are $3.38/gallon today (based off EIA's 8/19/24 average retail prices) you need a stockpile of 600 gallons or $2,028 worth of gas to get you through the next year. If your spouse, like most, would balk at the idea of installing a 600-gallon gas tank in your backyard, shares of UGA are perhaps your best alternative for hedging the risk of further increases in gasoline. $1,878 of UGA would effectively hedge your personal risk, with UGA trading around $63.48 this equals about 30 shares of UGA.
Other Considerations
If gas prices fall to $2.50/gallon in your area, you still have shares of UGA with a cost basis of around $3.38 per gallon, and so you will not truly participate in the gas price relief that your neighbors are enjoying, but should gas prices move toward $3.75-$4 per gallon your increased fuel cost will be offset by the appreciation of your UGA shares. If your spouse drives another 10,000 miles per year and your teenagers do as well, you will want to adjust the calculation to reflect that. Also, depending upon the type of account such a hedge is placed within, some consideration of taxable gains in UGA may be appropriate. For your average client, the gains from locking in a lower gas price may not be eye-popping but it provides a welcome topic for discussion outside of the Fed and interest rates and shows off your financial savvy and outside-of-the-box thinking.
