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Monday, June 4, 2012

Should you lock-in home heating oil price for the 2012-2013 winter?

By: Bob van der Valk June 4, 2012 In July 2008 crude oil hit an all time high of $147 a barrel, which put the price of raw material cost before refining at $3.50 per gallon Crude oil and heating oil prices are priced in sync and reached a recent historical low 2009 of $31 a barrel in January 2009. You could have locked in on $5 per gallon on heating oil for the 2008-2009 winter. Big mistake but hindsight is always 20-20. There is no need to be pre-paying heating oil contracts when there is very little upside in price but plenty of room for the prices to go back down. Home heating oil is already 2% down from a year ago when the Arab Spring was in full force with the cut off from Libyan crude oil driving the price crude oil ever upward. Today there is more downside pressure on crude oil and in the coming months we may even see in an instant replay of what happened in the latter part of 2008. That year was also a Presidential election year but political forces were not involved in the price of heating oil going into a freefall. West Texas Intermediate (WTI) crude oil prices have already declined to a price range of $80-85 with the current price at about $82 a barrel. That puts the price of raw material at about $2 a barrel for crude delivered at the refinery gate. Our recent mild winter will keep oil price manipulators, who artificially inflated the prices of petroleum products, away from hedging this market thereby driving prices up. You could pre-buy heating oil today at a locked-in price of $3 per gallon or pay as you go with each delivery. One warning, crude oil prices tends to bottom out at the end of each year, and then increase in the beginning of the year. Oil companies are on the “Last In –First Out” accounting system, for they lower inventories by December 31st, then building them back up right after the first of the year. The variants in setting the price of home heating oil will depend on the price of crude oil. By keeping an eye on the price of crude oil and you can not go wrong. About the author: Bob van der Valk lives in Terry, Montana and is a Petroleum Industry Analyst. He reports on fuel-related trends and events. E-mail: tridemoil@aol.com and http://bobthegasguyvandervalk.blogspot.com/2012/06/crude-oil-prices.html

20 comments:

  1. Do you still predict heating oil prices could go down for the 2012-2013 heating season? If you live in the North East would you lock in at 3.349 per gallon? Do you think downside protection at .30 cents a gallon is wise?

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    1. I recommend not locking in at any price unless it gets below $3 per gallon

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    2. Bob actually you are right, locking only if it is less than $3 per gallon. I agree with you.

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  2. This comment has been removed by a blog administrator.

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  3. @Jackie Champion, i do agree on what you had commented on this blog. great! red diesel

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  4. My rate lock 3.399 expires today 12/14/12 with Slomins Oil (LI, NY). They quoted me a fixed rate of 3.799 for 1 year or varible option .20 off the regular price per gallon, no cap. So today 3.949 (4.149-.20). As we're in the heating season, do you still recommend never to lock in above 3.00. I worry about anything variable. I suppose if one locks a rate it's best to do the in summer? Comments please. Thanks.

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    1. You are correct in your last sentence. The price of heating oil is variable to the price for crude oil. The experts are forecasting those prices to stay at or below today's level in the coming year. My forecast is for the West Texas Intermediate crude oil price below $70. The East Coast is more reliant on the Brent crude oil price but even OPEC has not been able to control their members to to their assigned quotas. Iraq can pump as much as they can produce and Saudi Arabia is the playing the great equalizer by lowering their quota voluntarily.

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    2. Thanks. It's a lot to process. I found a "ceiling program" (Meenan oil) @ 3.599 with 3.699 cap plus benefit of lower prices if that's the direction oil pricing goes. I appreciate your insight. Nancy from the NE.

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  5. This is really a good topic to make discussion. Good Post !!

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  6. Very nice post, thanks for sharing the information. Keep up the good work.

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  8. Hello there, I was looking for a heating oil hamilton and I came across your blog, very informative and entertaining, it shows that your an expert in your field.
    I will definitely be back for more. Keep it up!
    Cheers!

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  9. Today 10/14/2013, i am getting heating oil, 1 year contract for 3.399 a gallon.. Is that good deal ?

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  10. that is in NY-Long Island

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  11. I just got a 3.74 price lock. And I am on Long Island NY too. But it comes with a free full service contract with a good reliable company. The price lock may be a bit higher than I would like. sense to get a lock because i dont like price fluctuations , and it pretty average. I like having some idea what I will be paying. All utilities are high here on long island here sorry to say.

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  12. I was offered by burke 3.59 price for one year 2013. or a ceiling of 369. what should I do? I also know prices are falling.......

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    1. Don't lock in. Crude oil will be down another $20 a barrel between now and the beginning of 2014 translating to heating oil delivered below $3 per gallon in the open market.

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  13. The oil companies unfarily try to screw people every year by locking into already inflated prices and then reap the extra profits when oil declines. They should regulate these contracts !!!

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    1. You are not forced into contracts at unaffordable heating oil prices. Stay out in the open market and call several suppliers in your delivery area

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