As prices soar, fuel oil sellers leary of pre-buy options
By KATHRYN FLAGG
ADDISON COUNTY — Chart-topping heating oil prices have some local fuel vendors considering scrapping pre-buy plans this winter. With fuel oil prices having risen 80 percent in the past two years to near $4.50 a gallon, some say prices have got to fall.
“The simple fact is that we feel the market is a little high right now,” said Mike Bordeleau, the owner of Mike’s Fuels of Bridport. “If the prices stay where they’re at we probably won’t (offer a pre-buy this year).”
Bill Heffernan at Champlain Valley Plumbing and Heating in Middlebury chimed in with similar predictions.
“The price has got to come down pretty significantly,” he said. “We just don’t want to be that high. We’re holding off at this point.”
Typically, fuel vendors stock up on oil during off-peak months when prices are lower. Pre-buy programs offer customers the chance to lock into a per-gallon price, paying for a winter’s worth of fuel up front. Consumers are guaranteed that they will not pay more than that up-front cost even if oil prices spike — though they do run the risk of seeing prices drop below the amount per gallon they’ve shelled out.
Traditionally, the pre-buy option has saved families money.
“For the last 10 years that we’ve done it, we’ve only had one year where it hasn’t been a good deal,” said Bordeleau.
But he stressed that this year’s oil prices are unprecedented — making predictions about the coming months all but impossible.
“We’ve never seen the market do what it’s done this year,” he said. “The market is definitely very unstable right now.”
And though trends suggest that pre-buy deals are typically economically wise decisions, a pre-buy, said Doug Feldmann, the manager at Suburban Propane in Middlebury, offers no guarantee that a customer will come out ahead.
“You might end up eating the bear or it might end that the bear’s eating you,” said Feldmann.
Unlike some other local fuel companies, Suburban has already offered its customers a pre-buy option this winter — setting their prices back in May at $4.799 a gallon. In spite of the admittedly high price, Feldmann said, the company sold out its pre-buy options on a first-come, first-serve basis in just two weeks.
But such volatile prices, Bordeleau explained, make pre-buy contracts risky right now for fuel dealers and customers alike.
“There’s a lot of speculation, a lot of fear in America,” said Bordeleau. “I hope that (the prices) will come down.”
He termed fuel oil prices a “bubble” — one over inflated and primed, he hoped, to pop.
OIL PRICE HIKE
Crude oil prices hit record highs at over $145 per barrel last week, though prices have slipped about $10 a barrel since then. A year ago the price was $86 per barrel. High crude oil prices, which account for 70 percent of the cost of making petroleum products, are the driving factor behind expensive heating oil and gasoline.
Heating oil now stands near $4.50 a gallon, up from $2.50 a year ago. The federal Energy Information Administration said on Tuesday that fuel oil is expected to average $4.68 a gallon this December — up 20 cents a gallon from projections the EIA made last month.
“There’s no justification for the cost,” Bordeleau said. “The simple supply and demand aspects will take over and you’ll see a correction in the market.”
When that correction comes — which could cut prices by as much as half, Sean Cota of the Cota & Cota home heating company in Bellows Falls predicted in a report broadcast on Vermont Public Radio — remains as uncertain as ever.
“I wish I had a crystal ball right now,” Bordeleau said. In lieu of that particular convenience, he said, he’ll settle to “wait and see.”
According to Matt Cota, the executive director of the Vermont Fuel Dealers Association, the initial lag in pre-buy options has everything to do with this volatile marketplace.
“In May, we saw this crazy run up (in fuel oil prices),” Cota said. Dealers typically purchase oil in May, when low demand causes fuel oil prices to dip. Instead, this year, the price per gallon of heating oil spiked a full dollar that month. “Dealers hesitated. They didn’t want to be the first out of the gate.”
The second reason for the lag in pre-buy sales, he said, has to do entirely with the daunting up-front costs associated with the plans this year.
But regardless of the pre-buy season’s slow start, Cota is convinced that both pre-buy contracts and budget plans, which allow a customer to spread out heating payments over 10 or 12 months, will play a large role in the way that Vermont families cope with high heating prices.
“The (budget) programs are flying off the shelf,” he said. “People are talking about it. This is no longer something that we can ignore.”
Nearly three-fourths of Vermonters use unregulated sources of heat to warm their homes — 60 percent relying on fuel oil, and another 14 percent use propane. Unlike natural gas and electric companies, fuel dealers are under no obligation to deliver oil or propane to households that cannot afford to pay their bills.
For the state’s most vulnerable populations — particularly the elderly and the young — this makes the coming winter especially daunting.
“It’s going to be harder on us to carry the customers like we used to in the old days,” said Bordeleau.
For other families, high prices are fueling interest in alternative heating options — particularly wood pellet stoves, which several small fuel vendors noted have grown increasingly popular with customers.
“There’s a big, big interest,” Heffernan said.
APPEALS FOR FEDERAL AID
Meanwhile, the state’s congressional delegation responded to mounting concerns about winter home heating last week at a joint news conference in Burlington. Sens. Patrick Leahy, D-Vt., and Bernie Sanders, I-Vt., and Rep. Peter Welch, D-Vt., promised to push for more federal funding for heating assistance in the form of programs like the Low Income Home Energy Assistance Program (LIHEAP).
“I’ve never seen Vermonters so anxious,” Leahy said.
Sanders said he is hoping for LIHEAP funding to double — bringing the state over $6 million in funding. While he thinks the Senate has enough votes to pass legislation increasing funding, he’s not sure the bill will make it to a vote.
Separately, Gov. Jim Douglas and the other New England governors sent a letter to President Bush, Congressional leadership, and Sens. John McCain and Barak Obama urging the federal government to increase LIHEAP funding to $1 billion for the New England states this winter. They made the case that due to increases in fuel prices and in the number of people that will request assistance $1 billion will be needed in order to deliver the same amount of fuel to New England eligible households this winter as LIHEAP provided in 2005-06.
Locally, small fuel business owners urged residents to plan ahead.
“This is my one piece of advice: budget, budget, budget,” said Feldmann. “Get on a budget plan.”
“I would definitely start putting some money aside for the winter,” he said.