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
. "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."
By comparison, Py says an increase of half a cent would have been big news 10 years ago.
Today, many of the fixed-price programs are available for about $4.65 a gallon. Last year, the same programs were going for $2.50 to $2.60 a gallon. For a typical household using 1,000 gallons of heating oil per year, that's an extra $2,050 to $2,150 drain on the annual budget.
So as a consumer using oil to heat your home, what can you do?
The best advice is to reduce your consumption. As a consumer, you have very little control over what energy prices will be in the future, but you can take steps to significantly reduce the energy you use by conducting an energy audit, upgrading your heating systems and ensuring you have the proper amount of insulation.
from the Department of Energy.
If you can't afford to pay $5 a gallon or more in the middle of winter, then you may want to contact your dealer now and find out what programs it is offering for a fixed price. Even though you risk paying more than you need to for heating oil, the consequences of running through your home heating budget by February are worse.
It is important, however, to choose a fixed-
plan rather than a fixed-
plan. In the latter program, your actual bill won't change from month to month, but you may be left with a hefty balloon payment at the end of your contract if prices continue to rise.
If $5- or $6-a-gallon gas this winter would hurt, but not force you to give up on necessities like food and medication, you may want to take a wait-and-see approach. If there is in fact a bubble in the oil market, then there is a chance that it could burst and bring prices down to a more reasonable level.
Nevertheless, winter oil prices have declined only twice over the past 10 years. That means that 80% of the time, signing up for a fixed-price program was the right decision.
Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.