Hi all,
I wonder what your thoughts on the following risk-reducing strategy for people with oil for central heating are.
My parents live in their own house, which has a 5000L (1300 gallons) tank for heating oil.
They have to do market timing with respect to when to order, and how much to fill up (bare minimum makes risk of running out of oil when demand is high real)
Heating oil will never be without charge, but might go up like crazy if something goes wrong between supply and demand, but you have to have some.
The risk/reward here looks to be asymmetric.
So if they were to buy an ETC for heating oil covering their usual consumption, they would have zero price risk.
If the price goes up significantly, they could sell (part of) the ETC to cover the increased cost, or do nothing if it is not too much.
If the price goes down, they could fill up the tank as desired and not touch the ETC.
Am I missing a major upside or downside here?
To me, this kind of anti-speculation only makes sense when you actually use the stuff your ETC covers.
Of course there will be opportunity costs in putting around 2K euros on the side line, because I do not think that commodities are and investment after inflation. They may fluctuate strongly, but are not productive themselves.
Also for buying and possibly for selling. That may be viewed as an insurance premium.
Are there more efficient ways of having the same result than buying ETCs? What are your thoughts on oil stocks for this purpose?