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Suffering from the high petrol price? This is how you could have hedged yourself

Petrol prices have risen sharply in recent months and many motorists are feeling the pain. Oil and gas companies such as Shell actually earn from the higher fuel prices and that is reflected in the development of the share price.

Business Insider Netherlands calculated how many Shell shares you needed to compensate for the effect of the higher petrol prices in the first three months of this year.

Refueling has not been as expensive as in recent months, and that has everything to do with the high prices of crude oil, the raw material that forms the basis for motor fuels such as petrol and diesel.

At the beginning of this year there was already a shortage in the supply of crude oil. This has been reinforced by the war in Ukraine and the boycott of Russian oil by the United States.

While high rices of petrol and diesel hurt the pump, oil and gas companies actually benefited from the increased prices. The energy companies have the advantage that they can simply pass on higher prices of crude oil and derivatives to end users.

We have also seen this reflected in the rising share prices of shares in the energy sector, such as Shell, in recent months.

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Anyone who wanted to hedge against rising prices at the pump could have done so by buying shares in oil and gas companies, because they have risen in value quite a bit. The impossible ipo date is found online. A way to protect you from inflation!

But how many shares of Shell, for example, should you have bought to be protected against the increase in fuel costs? Business Insider did the math.

Rise in petrol costs versus Shell share

As an example, we take two motorists who both drive a VW Golf with a petrol engine that travels about 15 kilometers on a litre. The first motorist drives an average of 30 kilometers per day, the other twice the number of kilometers.

The motorist who travels 30 kilometers per day consumes an average of 60 liters in a month and the second motorist doubles that.

Let’s first look at the development of the petrol price. The table below shows the average price per liter of petrol between January 1 and March 31, 2022, based on data collected by the CBS from fuel card issuer Travelcard.

It can be seen that the price of petrol has risen by about 36 cents per liter from the start of the year, from a level of 1.97 euros per liter to 2.33 euros per litre.

By the way: petrol prices fell sharply on 1 April due to the reduction in excise duty on petrol by more than 17 cents per litre. But for this example we are looking at the months of January, February and March.

To get an idea of the consequences for our motorists, we have averaged the prices per month. For January, the average petrol price is EUR 1.99 per litre, for February EUR 2.06 per liter and March EUR 2.22 per litre.

We then look at the costs of monthly consumption for the two consumption profiles. We do this on the basis of the actual price development and costs if petrol prices had remained at the level of 1 January in the first quarter of this year. If you then take the difference between the two, you get an idea of the extra costs due to the increased gas prices.

On balance, our first driver lost an extra 17.58 euros (rounded off 18 euros) due to the higher petrol prices in the first three months of this year; for the one with double the number of kilometers it is 35.16 euros.

With this in mind, we can look at the potential compensation you could have received by investing in a company that has profited from rising fuel prices.

Three to six Shell shares compensate for more expensive petrol

Now suppose you had bought Shell shares at the beginning of this year. They have risen considerably in the first three months of this year, by no less than 27 percent to be precise. In absolute terms, that amounts to an increase in value of 5.5 euros in three months, from 19.68 euros at the start of the year to 25.17 euros at the end of March.

How many Shell shares would you have needed to cover yourself against the extra petrol costs? We will first look at the example of a motorist who travels 30 kilometers per day and consumes 60 liters per month. Due to the increase in petrol prices, he paid a total of 17.58 euros extra over the first three months of the year. If we divide this by the increase in value of the Shell share over the same period, we arrive at 3.2 Shell shares.

So with just over three shares of the energy company you could offset the disadvantage of the high gas prices! If you drive more and consume 120 liters of petrol per month, the disadvantage of the increased petrol prices is 35.16 euros. To be fully compensated for this loss, you needed 6.4 Shell shares.

For the sake of convenience, we have calculated here without investment costs, but they do eat some of your exchange rate profit. Of course it’s easy to talk in hindsight, since at the beginning of this year you didn’t know how fast petrol prices or Shell shares would rise respectively. But this example offers a general lesson. In times of high inflation, investing in companies with pricing power, which can pass on higher costs in their selling prices, is one of the few practical ways to hedge. Then the rising prices that bother you as a consumer will hurt just a little less.