Customers Must Weigh Merits of Heating Oil Pre-Buys

By Chris Fleisher
Valley News Business Writer

The skies are sunny, the temperatures are in the 80s and the pool is open in the back yard. And yet it's winter that has many people preoccupied -- specifically, how to stay warm in the face of skyrocketing oil prices.

As Upper Valley residents contemplate locking into price protection plans for heating fuel or updating home heat systems, they face average heating oil prices that have gone up nearly 60 percent in the past year and stood at around $4.46 a gallon last month.

"It takes more of the household budget than ever before," said Rob Stenger, owner of Simple Energy in West Lebanon and a veteran of 18 years in the heating oil industry.

With an increase like that, it would seem smart to buy fuel now before it gets any more expensive. The problem is that nobody knows how long the trend of rising prices will last.

"There is no typical pattern anymore. Over the last couple years, the typical patterns went away," said Casey Cramton, district manager at Bradford-Pratts Petroleum. "The challenge for us is having a variety of programs for customers to choose from. The challenge for everyone is knowing when the right time is to lock into a plan."

Volatility in the oil markets -- whether influenced by geopolitical concerns, supply-demand tensions or commodity speculation -- has made it nearly impossible for dealers and consumers to predict where the price of heating oil, kerosene, propane and other fuels will end up this fall.

Stenger said he's seen much more interest this year in pre-buy programs, in which customers lock into a price to buy a minimum amount of fuel. However, there will always be some skittishness about doing that when prices could drop later this summer, as they did in 2006.

"That was the first time in 10 years that people got stuck with higher prices in their pre-buys," said Kelly Launder, who tracks monthly fuel prices for the Vermont Department of Public Service. "It's a gamble, and you hedge your bets however you can."

Average Vermont prices for petroleum-based fuel sources -- oil, kerosene, propane, gasoline and diesel -- have followed a steady upward trajectory over the past year, according to Launder's most recent fuel price report. Diesel has been the most expensive, with a June price of $5 per gallon. That was followed by kerosene ($4.76), fuel oil ($4.46), gasoline ($3.97) and propane ($3.21). (This week, Launder will begin tracking average pre-buy deals in the Vermont and post the survey results to the Department of Public Service Web site, http://publicservice.vermont.gov.)

In New Hampshire, prices were slightly higher, according to the private Web site NewEnglandOil.com. Fuel oil in the Upper Valley averaged around $4.54 per gallon last month, according to the site.

Roughly 60 percent of Simple Energy customers opt for some kind of price protection plan, Stenger said. Traditionally, it's a gamble that pays off, according to Launder. Last summer, pre-buy customers in Vermont locked into an average price of $2.64 per gallon. By the time heating season started last fall, the price was up to $3.15.

"People definitely saved, and some saved really big," Launder said.

Even if prices were guaranteed to rise this year, paying now for a winter's supply of heating oil is not an option for a lot of people, especially when rising gasoline and food costs pinch household budgets. Dealers have tried to reassure customers with new price protection packages that reduce those upfront costs. So-called "budget" programs allow people to lock into a rate and spread payments over several months or a year. Those options can be more expensive than pre-buy overall -- 10 cents a gallon more at Bradford-Pratts, for example -- but could still be cheaper than buying heating oil in October.

Other programs build in flexibility if prices drop. At Bradford-Pratts, an "Easy-Cap" program guarantees a customer won't pay more than a predetermined price, whatever happens in the market. But if prices drop, the customer gets the lower rate upon delivery.

Cramton said he began offering it because of what happened in 2006-07.

"It was an offer to give them the benefit of price protection on both ends," he said.
Bailing Out

After several years of trying to beat the market, some people are giving up on heating oil altogether.

Bill Mathewson, president of Home Comfort Warehouse in White River Junction, said sales of wood and pellet stoves have more than tripled in the past year and now account for 80 percent of his business. Last year, the same products made up less than half his sales.

Mostly, people are looking to heat their entire house with wood and pellets, Mathewson said. Some people, however, have been using wood to supplement their oil heat.

Fred Schleipman, an 88-year-old Norwich resident, said he owns a wood furnace that sat mostly unused for years until oil prices shot up. He now spends $7,000 on heating oil for his home, and has used wood to save when possible.

Wood costs have gone up as well, he said, and now he's beginning to get a little worried.

"My concern is for retired people and young people just starting out," he said. "This is presenting quite a burden."

For his part, Mathewson said, wood and pellet stoves were among "the few purchases that will pay out."

Wood, while less efficient, is still cheaper in producing the same amount of heat, according to Launder's latest fuel report. It cost just $15.15 to generate 1 million BTUs of energy with wood, making it the cheapest option among those surveyed. Wood pellets were only a few dollars more ($19.59 per million BTUs). Compared with fuel oil, which cost $36.20 to generate 1 million BTUs, wood and pellets seem an attractive option.

That may not be the case for long, as demand for those options drives up prices. That's why Mathewson said he did not "have the nerve" to go too far down that road with his inventory of wood and pellet stoves.

"If, for some reason, demand does slack off before September, we'll be looking at excess inventory," he said.

One fuel dealer -- Patriot Fuels in Canaan -- has also responded to interest in alternatives to oil heat. This spring, for the first time, the company began offering solar panel installation for heat and hot water.

"We've been doing some research," said Doug Leach, vice president of Patriot Fuels. "In the past, we'd forward people along to someone else. Now we're doing it in-house."

There are other ways of reducing winter heating costs without abandoning your furnace, Stenger said. Installing a hot water-heating fuel economizer, for example, can pay for itself in a season or two, Stenger said.

As for getting the best price on fuel, Stenger said, price protection -- while potentially risky -- is the best way to go. He has given up trying to predict the market, but doubts October prices will drop below current levels.

If his own business gets any benefit from offering price protection, Stenger said, it is in managing his supplies. He buys oil according to the commitments he has, not by what he figures the market will do. Speculation is rarely the affordable option.

"The message we've sent to our customers is that we sell while supplies last," Stenger said. "No one in our business can afford to speculate because of the volatility."