Many L.I. Heating Oil Dealers Cutting Out Price-Lock Contracts

Posted by admin on August 25, 2009 at 10:25 am

A Long Island heating oil retailer makes a delivery. (image: newsli.com)

Many Long Island heating oil dealers are reluctant to offer customers fixed-price contracts for the upcoming heating season after last year’s wild price swings, Long Island’s Newsday reported on Friday.  2008’s unprecedented run-up in oil prices—with crude hitting $147 a barrel, and heating oil averaging $4.93 per gallon on Long Island—left both dealers and customers bruised. Customers, fearful that prices would continue to climb, had locked in high prices, up to $5 a gallon. When oil prices collapsed at the beginning of heating season, those customers were left overpaying for oil by thousands of dollars. In many cases, they were able to get out of their contracts, but only by paying hundreds of dollars in cancellation fees.

However, that in turn left dealers exposed. Based upon contracts with their customers, they had committed to buying millions of gallons of oil, often at high prices. Dealer’s commitments in many cases exceeded what they recouped through the contract-cancellation fees, causing them to suffer major losses at the same that time they lost customer goodwill through the cancellation fees. That double loss—of income and customer relations—is not something that many are eager to repeat. “Once burned, twice shy,” as the chief executive of the Oil Heat Institute of Long Island put it. Or as the president of Romanelli & Son, a family-owned oil dealer said, “Most of us will not do fixed prices this year. Most of us will never do fixed prices ever again.”

That’s not to say that fixed-price contracts are unavailable on Long Island. The three largest companies, holding 30 percent of the market, are so far still offering fixed price contracts, albeit reluctantly. (The balance of the LI home heating oil market is split amongst 100 full-service dealers and 200 cash-on-delivery companies.) Other companies are offering “capped price” contracts as an alternative. In price cap contracts, there’s an upper limit or ceiling on prices, so customers have protection against another wild run up; but the contract price can decline if the market price for heating oil falls.

It’s more than just LI dealers who are hurting—as we reported on August 17th, at least 15 heating oil dealers in 6 states have gone out of business in the last year.  This includes F & S Oil, which went out of business after collecting $3 million from customers who pre-bought their oil. The group representing smaller dealers in Connecticut predicts that another 25 – 30 may fail before the end of the coming heating season. Besides incurring losses from the collision of broken customer contracts with their own oil-buying commitments, dealers have been hurt by the credit squeeze. They need credit—often millions of dollars—to buy oil, but banks are reluctant to lend, especially to smaller businesses in such a volatile market.

Heating oil is vital to the Northeast—50 percent of New England households and 65 percent of Long Island homes heat with oil—and this market volatility is taking its toll on all participants. For example, on Long Island, in the space of a year, heating oil prices spiked to $4.93 per gallon on average, plunged to $2.515 per gallon, and then began climbing again. In New England, average prices have swung from over $4.00 a gallon down to $2.00 a gallon, and back up to $4.00. When prices can drop by half, then double again, all within twelve months, it’s impossible for either homeowners or dealers to budget properly.

What can you do to protect yourself? One thing is to work with a reputable dealer who’s on solid business footing. HeatingOil.com’s referral service can help you find dealers who’ve been screened for insurance, licensing, and financial viability.

Another thing is conservation. If you use less oil, you’ll spend less—and the swings in price won’t matter as much. You can find some simple DYI home conservation projects at HeatingOil.com.

A third tip is good maintenance. If you keep your heating system in good repair and also keep your oil tank leak-free (Since nothing wastes money like having the oil you paid for simply drain away!), you can save money while also reducing your ecological footprint through a more-efficient, less-polluting oil storage and heating system.