we have the following information:

	Spot price	Dec future	Jan future
Price of crude oil (WTI Cushing): $/barrel	62.21	62.34	62.46
Price of gasoline (NYC): cents/gallon	169.4	168.7	169.6
Price of heating oil (NYC): cents/gallon	218.8	218.0	217.2

You run a refinery that needs oil in December, and will sell the products in January. Assume for now that 3 gallons of crude will produce 2 gallons of gasoline and 1 gallon of heating oil.

You could buy three crude oil futures (at 1,000 barrels each) for December, and sell 2 gasoline futures (at 42,000 gallons each) and 1 heating oil future (also at 42,000 gallons) for January. What would your total gross margin be? What is the profit per gallon of product produced?

Suppose you did not buy and sell using futures. When December arrives, you have to pay $69 per barrel for oil and you can sell gasoline for 182 cents/gallon and heating oil for 235 cents/gallon in January. What will your profit be?

Suppose you did not buy and sell using futures. When December arrives, you have to pay $69 per barrel for oil and you can sell gasoline for 200 cents/gallon and heating oil for 241 cents/gallon in January. What will your profit be?

Why might alternative a. be preferable to relying on the spot market? When might alternative a. not be preferable to relying on the spot market?