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Low prices affect fuel dealers

ADDISON COUNTY — Oil prices are subject to change. If anyone knows this, it’s Tom Jackman, owner of Jackman Fuels Inc. in Vergennes. His grandfather started the company in Bristol in the 1930s and he still has receipts from years ago when the price of oil was 13 cents per gallon.
“Then, it was a big deal if it went up to 14 cents in a year,” he said. “In 2008, we were seeing increases of 40 cents overnight.”
While the price to heat a home or drive a car has certainly been high in recent years, this winter the cost of oil has been on the decline in a big way. The retail price of oil is at its lowest since October 2009, according to the latest report from the U.S. Energy Information Administration. According to Nasdaq, the price of crude oil per barrel has dropped from $100 per barrel a year ago, to around $80 in November to under $50 this month. This has reduced prices at the gas pump by a dollar since last year and dropped the cost of heating oil from $3.78 per gallon in January 2014 to $2.83 this month, according to data from the U.S. Energy Information Administration.
The drop in prices is due in part to expanding drilling and refining operations in the United States and Canada, and to decreased consumption worldwide. Mike Bordeleau said as a result the big cartel of oil-producing countries is losing its power to set crude oil prices.
“OPEC has lost a lot of their market,” said Bordeleau, owner of Mike’s Fuels in Bridport. “They’re realizing that they’re going to have to keep a product at a low price in order to keep it appealing.”
For residents in Addison County, that means cheaper gasoline and for those heating their houses with oil, a lower heating bill. According to the most recent data from the U.S. Energy Information Administration, a household using between an average of 650 to 700 gallons of fuel is spending approximately $640 less than in January 2014.
While most consumers are excited about lower prices, the drop in prices hasn’t exactly been welcome news to customers who opted to participate in fixed-price contracts for winter fuel oil last summer when the price of fuel was higher. In these contracts, often referred to as “pre-buys,” customers agree to a fixed price per gallon for delivery of a fixed amount of fuel oil over the winter. A fixed-price contract pays off when fuel prices rise over the heating season, but it is not a guarantee that the fuel will be at the lowest price. And as the price per barrel of crude oil continued to drop, many people who were locked into a fixed rate have found themselves paying more than those not participating in programs. 
“It’s certainly a rough year for the programs,” Jackman said. “You hope that your customers realize that for the past five years they’ve benefitted by saving 40 to 50 cents per gallon. It’s like any budgeting issue that you have; you plan for it and put that much aside.”
This isn’t the first time prepaid programs have been undercut by dropping prices. In 2008, Goldman Sachs predicted the price of oil would reach $150 per barrel.
“People were dying to lock in (fuel oil) at $4.50 per gallon,” said Jackman. “And they did. But then prices fell to $3.50 per gallon.”
Despite the drop, Bordeleau said pre-buy programs remain popular among customers.
“If you average it out, they’re still ahead,” he explained. “For the years they saved and the year that they lost, they’re still much further ahead in their savings.”
Bordeleau also said the higher prices for fixed-rate customers (ranging between 50 cents and a dollar per gallon, depending on the contract) don’t mean extra income for gas companies; any extra earnings are put toward future contracts with fuel suppliers.
“We only make our margin off of those gallons, it’s not like we’re making a windfall off of it,” he said.
The low cost of fuel also benefits people who struggle more than most to heat their homes in the winter. Since the heating dollar is going farther this winter, Karen Haury, director of Addison Community Action/Champlain Valley Office of Economic Opportunity, said homeowners could put off applying for fuel assistance if they need to apply for it at all. Fuel is provided in 125-gallon increments, but cheaper fuel does not mean the program will distribute more of it.
“We’re getting it at a cheaper rate but it doesn’t translate to getting more to help the person seated in front of us,” she said.
Bordeleau of Mike’s Fuels said cheaper prices are good for both the consumers and the people selling the petroleum-based fuels locally. He anticipates the low prices to stick around for the foreseeable future.
“There are benefits all around,” he said. “It costs less to operate our business in terms of working capital, it’s easier for the customer to make payments when it’s a dollar less per gallon. It’s definitely more appealing that they can turn up their heat and feel a little more comfortable knowing that it’s not going to bankrupt them like it was last year.” 

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