If a wholesaler gambles that the prices will go up, and he locks in his price today and the price goes DOWN, he gets to sell at the higher price anyway?
Stay with me here.....
If ABC Distributor contracts to buy gasoline at $1.80/gallon and plans to distribute it at $2.10 a gallon, he buys at that price whether the market price goes up or down. If it goes UP, he stands to profit because his cost of goods sold is fixed and below market.
If the price goes DOWN, his cost of goods sold is fixed at $1.80 a gallon and he is in a bad spot. Since the costs were so volatile a couple of quarters ago, almost all distributors did this, so they are all locked in.
No foolishness involved. It's the market. Do some research on Southwest Airlines and see how much money they lost last quarter for this exact reason.
Ok...stay with me here...
HOW ARE THEY LOSING MONEY IF THEY ARE SELLING AT THE HIGHER RATE ANYWAY!!!
But what you are saying is that there is no risk to being a distributor.