Advice: When to Lock In Heating Rates

Now that summer's officially begun, the winter heating bill is the furthest thing from many people's minds. Yet for many parts of the country, late spring and early summer is the time to lock in winter heating oil prices.

With the meteoric rise in oil prices, however, consumers as well as distributors are increasingly wary about locking in too quickly.

In order to deal with the high heating oil prices that come hand in hand with cold winter months, many distributors offer pre-buy or pre-pay fixed-price plans to their clients.

Typically, a dealer will secure a number of contracts from a wholesaler (or wholesalers) to buy a set amount of oil for delivery at a future date. These deals are referred to as futures contracts. The dealer then offers a fixed price to consumers based on the prices from the futures contracts.

If the price of oil later goes up, the consumer still pays the fixed price, thereby saving a lot of money. But if the price goes down, the consumer can be stuck paying a premium.

Heating oil prices are tied closely to crude oil prices, and the volatility and relentless rise in the market has many folks pointing at a bubble.

"On June 6, we noticed that prices had gone up and reached another record," says Jamie Py, president of the Maine Oil Dealers Association. "Prices had gone up 29 cents on the futures exchange -- in June when it was 80 degrees out. That's difficult to blame on supply and demand."