November 08, 2024
Business

Lower prices prove costly to Maine oil dealers

While Maine homeowners are benefiting from this season’s drop in heating oil prices, dealers who bought expensive futures contracts in an attempt to stabilize prices for their customers have found themselves in a bind.

In July, Charles Tanner of Kleen Oil Co. in Portland bought 84,000 gallons of oil for delivery this month, paying about 80 cents a gallon. Last week, he could have bought oil at South Portland terminals for 55 cents a gallon.

“I’ve never seen anything like it and I’ve been in business 27 years,” Tanner said last week. “It’s like I’m being punished for trying to protect my customers.”

The collapse of wholesale prices resulted from a drop in demand linked to a national recession, the Sept. 11 terrorist attacks and unseasonably warm weather during autumn.

Heating oil customers have seen sharp fluctuations in price in recent years. After sitting at 75 cents per gallon most of 1998 and 1999, prices shot up to a record $1.80 in early 2000. Last winter they peaked around $1.55, before starting a downward slide. The statewide average last week stood at about $1.10.

Today’s low prices have drawn a new crop of small dealers to the business. By selling cheap oil at cut-rate prices, those dealers have contributed to a highly competitive fuel oil market, at least in southern Maine.

The spike in prices early last year led many dealers to offer oil price protection plans to provide some insurance to homeowners. But they can present risks, for both customers and dealers.

Some deals cap prices, but offer market rates if prices stay below the cap. That can be good for the consumer and risky for the dealer, if the dealer paid too much for oil supplies.

Customers, too, gamble if they sign up in summer for what seems to be an attractive fixed-price contract, lock in a set price, and the market unexpectedly drops.

In some cases, dealers have opted to share those losses to keep their customers happy.

At Garland Oil in Scarborough, 40 percent of the roughly 6,500 customers signed up this year for some form of price protection.

One deal is a fixed-price contract, in which a customer buys as much oil as desired for a fixed price of $1.19. That sounded good, compared with last winter’s prices in the $1.40 range.

But it has turned out to be a bad gamble so far in this heating season, when oil is readily available below $1 a gallon. After some customers complained, Garland lowered the fixed-price charge a dime to $1.09 and ate the difference.

“I look at it as a long-term relationship,” said Steve Garland, a co-owner. “We’re probably not going to make money for the next three months, but I want to keep my customers.”

Jerry Wallace, general manager of supply at Dead River Co., said dealers who buy on the futures market make a firm commitment and should not take on all the financial risk.

Dead River, one of the state’s largest oil dealers, didn’t ask customers who took out fixed-price customers last year to share their savings, Wallace noted.


Have feedback? Want to know more? Send us ideas for follow-up stories.

comments for this post are closed

You may also like