Written on: July 22, 2013 by ICM
July 22, 2013
It’s that time of year when Vermonters are finding ways to stay cool. But it’s also the time of year when some homeowners are thinking ahead a few months to when they’ll be reaching for their thermostat and not their air conditioner.
Oil prices have spiked in the last week or so, driving up the price of gasoline and other fuels.
But looking ahead to winter, prices are forecast to stabilize, said Michael Kundrath of the state Department of Public Service.
Kundrath attributed the recent jump in crude oil prices to tensions in the Middle East. He said crude oil recently jumped from $93 to $106 a barrel.
“Given any major disruptions in supply or problems with refineries, the basics, the supply and demand fundamentals, would seem to say that we’re going to be close to where last year was,” said Kundrath, the department’s energy policy and program analyst.
According to the state’s July fuel price report, among the state’s fuel oil dealers surveyed the average pre-buy cash price averaged $3.61 a gallon; budget plans averaged $3.68 a gallon.
For comparison, the average retail price in January was $3.825 a gallon. It jumped 12 cents a gallon in February to $3.94 a gallon.
For propane, the average July pre-buy cash price was $2.60 a gallon; budget plans averaged $2.58 a gallon. In February, the average retail price for propane was $3.155 a gallon.
The federal Energy Information Administration is forecasting that heating oil will average $3.73 a gallon this year, 3 cents less than last year, and fall again in 2014 to $3.61 a gallon.
With the state in the midst of its first hot spell, heating oil isn’t on the minds of most Vermonters, said Peter Bourne of Bourne’s Energy.
“As Vermonters we never get worried about this until the first cold night and then we kinda go, oh, it’s going to happen again,” said Bourne, whose Morrisville-based company sells a variety of heating products, including wood pellets.
Bourne said with “more stability in the market” this year, there isn’t the rush to lock in prices for the winter. He said the number of customers who sign up for some kind of program has remained fairly steady.
Saying he didn’t like to “throw out numbers,” Bourne declined to disclose his current price per gallon.
Chris Keyser, who owns Keyser Energy, said heating oil prices have been relatively stable over the last year and should remain so barring some major event. He also said inventories of heating oil remain plentiful.
Like other dealers, Keyser offers several purchase options, including pre-buy and budget plans, along with price protection as an option.
For someone who pays their heating bill upfront for a specified number of gallons, Keyser’s price last week was in the $3.69 a gallon range. For those who opt for a budget plan for a specified number of gallons paid over 10 months, the price was $3.79 a gallon.
“The budgets are actually getting more popular just as a way to manage costs these days,” Keyser said.
Keyser’s cash price one day last week was $3.59 a gallon.
He said price protection insurance adds another 20 cents a gallon, down from 25 cents a year ago and 30 cents two years ago. If the price goes down during the season, the customer is guaranteed the lower price.
Matt Cota of the Vermont Fuel Dealers Association said roughly half the fuel dealers in New England offer some kind of fixed-price program, either pre-buy or a cap plan where the price is locked in.
“We’ve certainly seen a drop-off in popularity from 10 years ago but they are still widely used by fuel companies and their customers as a way to lock in your price and relax and not worry about it during the winter,” said Cota, the VFDA executive director.
He said, however, a program that locks in the price is no guarantee a customer will save money should the price go down, only a guarantee the customer won’t pay any more should the price go up.
While customers as a rule usually benefit from locking in the price, there are exceptions. Cota only had to point to the summer of 2008 when fuel prices soared as oil reached nearly $150 a barrel. Then in the fall the bottom fell out of the world economy and oil prices went into a free fall.
Anyone who locked in their fuel price that summer ended up overpaying as the price of oil tumbled $100 a barrel, Cota said.
“For some people, that turned them off,” he said, referring to the fixed price programs.
Keyser added that price protection plans aren’t very popular because the price would have to drop as much as the extra cost of the insurance premium just to break even. He said approximately 40 percent of his customers are signed up for some kind of pre-buy or budget program. The rest pay cash on delivery, he said.
Cota, too, said budget plans are more popular. Those plans are based on estimated usage with the payments spread out over 10 to 12 months at an estimated price per gallon. At the end of the heating season, if the total cost is less than the estimated price, the customer receives a credit for the next heating season or, if more, writes a check for the excess amount.
Keyser said Vermont’s demand for heating oil has diminished considerably over the years. In 1980, Vermonters consumed 250 million gallons a year. Today, he said heating oil consumption is half that amount.
He said the decline can be traced to energy efficiency measures and alternative fuels including wood and wood pellets.
Cota said in 1970 a typical home consumed an average of 1,600 gallons of fuel. Today, that number has been whittled down to an average of 700 gallons. He said that in turn has led to a consolidation in the industry with fewer dealers.
Bourne said based on the information available, heating oil supplies this winter shouldn’t be an issue. He said, however, prices could spike as they have recently due to tensions in the Middle East.
Also part of the price equation is the role of Wall Street speculators, who in the past have been blamed for the run-up in gasoline and heating oil prices.
Bourne said that remains a concern.
“Supply and demand is still not the primary motivator of pricing,” he said.
