November 14, 2024
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Volatile oil markets vex dealers, refiners Maine firms put hold on caps, gambling heating costs may fall

BANGOR – Current record-high prices for heating oil supplies are causing many Maine heating oil dealers to avoid offering price-cap plans this spring as they typically do each year.

Some major heating oil dealers, such as Webber Energy and Irving Oil, are touting other pre-season pricing plans to their customers but are warning them to do so at their own financial risk.

For several years, companies offered price-cap plans, where the per-gallon rate paid with each delivery does not exceed a locked-in price.

Not this year.

Given the volatility in the international crude oil markets these days, one Maine dealer said he would take a wait-and-see approach before signing up for any pre-season rate plans. The two plans currently offered – the pre-buy or fixed-rate budget – lock in rates that consumers cannot go back and ask to be lowered if prices drop in the next few months.

“The prices right now are at historic high levels,” Bob Moore, senior vice president of Dead River Oil Co. in Portland, said this week. “That being the case, is now the best time to be locking in a price?”

Under a pre-buy plan, a consumer pays in advance for a specific number of gallons that will be delivered during the winter months. Under the fixed-rate budget plan, consumers lock in a rate and a specific gallon amount but pay off their balance over time. Under both plans, the rates never go up or down.

The Maine Oil Dealers Association, a trade group based in Brunswick, believes it’s always a risky venture each spring for homeowners to lock in a per-gallon price for the following winter. In years past, with more than 50 percent of homeowners signing up for pre-season plans, consumers either saved hundreds of dollars or lost hundreds.

This year, with wholesale heating oil prices for deliveries next winter at record highs, trying to decide on the optimal moment to lock in a rate is a game of chance. And this year, unlike past years, heating oil suppliers are assuming more risk by gambling that record-high heating oil prices for this time of year will ease even though they’ve gone up 7 cents this week alone.

“Our dealers are hopeful that prices will come down,” said MODA President Jamie Py. “You have a futures market that concerns a lot of our members. That’s why they’re not offering the caps.”

By not establishing their price-cap plans, many dealers may be thinking they are providing a form of good will – by sparing customers from locking into a high price now and then being angry if prices drop later in the year. Heating oil season traditionally begins in November.

“The oil company always takes a risk because when the customer is mad, the customer is mad,” said Robert Tracy, spokesman for R.H. Foster in Bangor. “The customer wants the cheaper price.”

The price for crude oil, the primary ingredient in heating oil, this week was roughly $42 a barrel.

If heating oil dealers this week wanted to lock in their supply for next winter, they would have paid $1.15 a gallon for crude oil that’s designated to be refined into heating oil, Py said. That’s approximately the cost of the capped retail price of heating oil last year.

Added to the crude-oil price are the costs of refining it into heating oil, shipping it to Maine and distributing and marketing it to homeowners. The retail price this year would be at least $1.50 a gallon, Py said.

Last January and February, when heating oil prices were at the highest levels during the winter, homeowners who weren’t in a pre-season price plan were spending between $1.50 and $1.60 a gallon, Moore said.

“Futures prices this year relative to last year are very high,” said Tracy, noting that R.H. Foster usually announces its pre-season plans in June. “We’re sitting on the sidelines watching crude.”

Whether the dealers will have adequate supplies this winter does not seem to be an issue, even though they are not alerting wholesalers and refiners as to how much oil they’ll need and at what price they’re willing to lock in right now, Py said.

“[Wholesale] suppliers know historically how many gallons companies will need,” Py said. “I don’t see it as a supply problem. People are going to have to commit at some point.”

Like the mailings sent out by other major dealers, Webber Energy’s letter about its “price protection programs” does not list a set lock-in price. The letter tells customers they’ll have to decide when the time is right. Webber’s mailing advises customers to call the company’s office for prices and alerts them that prices “are reflective of the current market and changes may occur as frequently as daily.”

“The price you may lock in has not been pre-set by us,” according to a Webber Energy mailing. “It will vary with the oil and propane commodity markets until you choose to lock in your price. Under the program, you decide when it’s the best time to lock in.”

Michael Shea, president of Webber Energy, did not return numerous telephone calls for comment this week.

Choosing the right time to lock in a price is a tough decision to make, Py said. Even as president of the Maine Oil Dealers Association, he said, he struggles with whether he’s made the correct choice.

“Last year, I locked in at $1.19 and it ended up being a good decision,” Py said. “This year, customers are going to be looking at an offer by a dealer and it’s going to be significantly higher than last year, and then they’re going to have to make a decision: wait or lock in.”

Earlier this week, Irving Oil implemented an incentive program as a way to sign up new or existing automatic delivery customers to its plans. Irving will give a 6-cent-per-gallon break on gasoline purchased at any Irving station in Maine, New Hampshire and Vermont, with a limit of 700 gallons of gas per household, according to Michelle Firmbach, spokeswoman for Irving Oil’s U.S. operations based in Portsmouth. The discount is worth up to $42.

“We like to make life warmer for our customers,” Firmbach said.

But one independent dealer does not offer pre-season plans because he believes “you can do better with cash.”

Rodney Morin of Morin Fuels in Bradley, who sells “a million or so” gallons every winter, said he dropped the pre-season plans because customers would be displeased if they locked in a price and then the price dropped.

“I really steer around it because you can make enemies,” Morin said. “Sometimes you can get caught up in the mess. Right now it’s not a good thing to do. We’ve got no control and there’s no insight into what the market could do. It’s a gamble. But some people like to gamble. It’s a losing situation that I could see.”

Correction: Clarification Most major heating oil dealers statewide will offer price-cap programs next winter, but they may not have set their cap prices yet this spring as they usually do this time of year. A Page One story in last weekend’s edition may have implied that no heating oil dealer was going to offer price-cap plans for next winter. Over the weekend, Dead River Oil Co. set its cap price at $1.64 per gallon, about 30 cents higher than what many of its customers locked in last year, according to Bob Moore, senior vice president.
Under a price-cap plan, customers lock in a rate and, if heating oil prices go higher than that amount, they won’t be charged the greater price. If prices are lower than the cap price, that per-gallon amount is what they would pay.

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