Lock-in contracts for heating oil getting cold shoulder: Dealers wary of allowing customers to sign on to pay predetermined per-gallon price
Saturday, July 28, 2007
Jul. 28, 2007 (McClatchy-Tribune Regional News delivered by Newstex) --
Usually, this is the time of year when heating oil customers are pondering whether to make the annual gamble of locking in prices for the winter, but for many it is not even an option this summer.
After losing money on that bet last year -- locking in winter contracts during the summer only to watch oil prices drop in the fall -- customers are wary of taking the risk again this year, and some oil dealers are not letting them.
'We're not offering lock-in contracts for the upcoming year,' said Evan Schmidt, general manager of Rozoil in New Haven, which sold oil for $2.29 a gallon Friday. 'We think it's going to be less popular this year. Everybody learned a lesson last year.
We think it's the best thing for the consumer (not to lock in).'
When customers lock in oil prices, they sign a contract agreeing to pay a predetermined per-gallon price for heating oil throughout the winter, instead of fluctuating market costs. If oil prices drop in the fall or winter, lock-in customers still must pay the higher price they locked into during the summer. That is because oil dealers are required by law to secure the bulk of the oil they need to cover all lock-in contracts at the time those contracts are signed, and they pay those higher summer costs to do so.
Last year, customers who locked in prices during the summer, assuming prices would keep rising through the fall, lost money when prices dropped instead.
'This year is looking almost exactly like last year was. The prices are really high,' said Sal Camera, owner of Alpine Heating & Cooling Co., which sold oil for $2.49 a gallon Friday. He expects prices to drop in the fall and has not set a lock-in price.
On Friday, crude oil, which drives heating oil costs, rose $2.07 to settle at $77.02 a barrel on the New York Mercantile Exchange. That was just 1 cent shy of the $77.03 record price set July 14, 2006.
'We're not suggesting for people to lock in,' Camera said. 'A lot of people last year got scared by the price, but everybody is crying from last year because everybody who locked in lost money.'
At Apple Oil Co. in West Haven, Vice President Sam Livieri Jr. plans to set a lock-in price Wednesday, waiting later into the summer than usual. On Friday, he sold oil for $2.50 a gallon.
'We're suggesting to hold off of the lock-in price,' he said. 'We've put our lock-in prices on hold until Aug. 1. Some customers do insist on locking in, but I think the amount of people wanting to lock in is fewer.'
While area dealers expect the price of heating oil to drop this fall, they acknowledge it is virtually impossible to predict oil prices.
'We don't have a crystal ball,' Rozoil's Schmidt said. 'There's no way to predict which way it's going to go.'
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