It’s lock-in time, and the stakes have risen very high for consumers wondering whether to roll the dice on heating oil.

Mainers who heat with oil weathered one of the most expensive seasons ever last winter, with prices in some markets reaching a record level up to $2.25 per gallon.

Fresh from that experience, many heating oil customers must now decide if they want to enter into payment plans with their oil companies that would give them the security of consistent monthly payments, but at a high rate for the rest of the year.

Given the current price – $1.98 or so – do they lock in now or forgo a payment plan and gamble that the numbers will tumble before the next heating season arrives?

“It’s hard to predict,” said Mark Cyr, retail sales manager for oil dealer C.N. Brown.

The U.S. Department of Energy is trying to, though. It forecasts crude oil to trade in the $50-plus per barrel range through 2006, said Beth Nagusky, director of the state’s Office of Energy Independence and Security.

If that’s the case, heating fuel, diesel and gasoline prices will reflect the higher crude costs for some time to come.

Nagusky said she doesn’t expect crude cost to fall back to more traditional levels of $30 and $40 per barrel.

But prices also spiked in the winter of 2000, and during parts of winters since then. People who were in a position to buy their oil supplies when those highs fell could realize savings.

“In just the past four years,” Cyr said, “anyone who pre-bought their oil or went with a price-capped plan has benefited.”

Last year, customers who pre-bought their oil or negotiated price locks around this time signed onto $1.39 per gallon contracts. By contrast, cash customers paid an average of $1.95 a gallon, according to the Maine State Planning Office.

In this off-season, No. 2 prices haven’t fallen considerably.

Cyr noted that Paris-based C.N. Brown’s cash price for a gallon of No. 2 heating oil now is averaging about $1.98, depending on the market and related transportation costs.

That’s down only slightly from the $2.12 per gallon state average found during an end-of-season price survey in late March.

Blame global demand

Jamie Py, president of the Maine Oil Dealers Association, says global demand for oil-related products, especially gasoline and diesel fuel, is to blame for the unseasonably high prices facing Mainers today.

On Wednesday, crude was trading at $51.40 for a 42-gallon barrel on the New York Mercantile Exchange. That’s little changed from where it was during the height of the heating season.

By way of comparison, consider this: At this time of year in 1999, a 42-gallon barrel of crude was trading for $12. No. 2 oil could be bought in Maine for less than 80 cents per gallon. By January 2000, prices spiked. Oil was trading at $28 per gallon and No. 2 was retailing at $1.75 per gallon.

Since then, crude has slowly climbed to today’s prices.

Py said the dealers his organization represents are no happier about those high prices than the people who buy their heating fuel from them.

“They have to base their (budget and price cap) plans on the futures market,” Py said. “They have to buy next January’s supply today.”

That means, said Cyr, that some customers are locking in No. 2 at roughly $2 per gallon. If the price goes up come winter, they’ll be ahead of the game.

If it drops, they may or may not see a lower price, said Py.

“Some dealers are able to pass along price reductions,” Py said, but others aren’t, depending on how they buy their own supplies.

Dealers who buy “wet barrels” – the actual product – in advance of the heating season based on customer orders, have an advantage that protects them against increases. Dealers who can’t buy large quantities in advance can find themselves in trouble: Some take customer orders, and their money, but then don’t have enough funds to pay for the increased cost come heating season, and go out of business.

‘It’s like Vegas’

Cyr and Py each noted that a type of pricing insurance is available to dealers who buy their customers’ supplies in advance. But while that “downside protection option” was once available for 6 to 8 cents a gallon, today’s premium is up to about 18 cents per gallon. Not all dealers can afford to gamble on the option at that cost, Py said.

“It’s like Vegas,” said Py, dealing with “traders and the volatility in the market.”

Cyr said budget plans, as well as prepayment programs, remain popular with C.N. Brown customers, with between 50 and 60 percent of the company’s oil business done through one or the other program.

Py said such programs represent about half of MODA’s members’ business statewide.

Both men especially praised the benefits of budget plans which may or may not lock customers into a price, but do equalize heating payments across 10 or 11 months based on a customer’s past use and anticipated prices. Overpayments or underpayments are adjusted at the end of the heating season.

For Cyr’s customers, he said that means monthly bills of $80 to $100, on average. “You’re not hit with that $400 bill just before Christmas,” he said.

Of course, budget customers who didn’t have a price lock on their purchases for the last heating season might be making up for some differences now. After falling to the $1.39 range about this time a year ago, No. 2 started the heating season in October 2004 at $1.70 per gallon and quickly shot up to the $2 range. Budget customers lacking a price lock would have to pay the difference at the end of the season if, say, their bills were originally based on $1.70-per-gallon oil.

The state Office of Energy Independence and Security said No. 2 heating oil – the fuel of choice for about 80 percent of Maine’s homes – averaged 37 percent more per gallon last season than during the ’03-’04 heating season. That means people paid an average of 53 cents more per gallon, or $530 extra for 1,000 gallons.

By the numbers

Heating oil

$1.95: Average price for the winter of 2004-2005

$1.42: Average price for the winter of 2003-2004

37: Percent increase in fuel price from winter of 2003-04 to last winter

$1.98: Current cash price

Sources: Maine State Planning Office, C.N. Brown


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