Oil Prices Heating Up and So are Ways to Pay

If your home is like thousands of others in our area, you have an oil fired burner and boiler in your basement connected to a big tank.  As the temperatures fall, we are starting to get regular visits from the oil truck.

The good news is that oil prices have been relatively stable in the past four weeks. The bad news is that they typically rise throughout the heating season, and started this season (October 2011, $3.60/gallon) much higher than a year ago (October 2010, $2.90/gallon). If you want to track this, visit the US EIA site. 

Many oil suppliers now offer have more than one option for pricing and purchasing oil. 

The old system was a simple pay-as-you-go "variable price" plan: you call for a delivery–or they show up according to your home's past consumption–and you pay whatever that day's price per gallon is.  

For consumers this system meant spending a lot of money in the winter for heating oil and practically none in the summer.  For oil companies, it meant big revenue in winter and virtually none in summer. 

Budget or equal monthly installment plans became common to smooth out the expense spike for consumers in winter and the revenue gap for oil suppliers in the summer. Under a typical budget plan, your oil company offered you a flat dollar cost per month, essentially averaging your oil expenses over 12 months. You build up a surplus in the summer and draw it down in the winter, depending on how much oil you burned and what the price per gallon was on delivery.  

Of course, leaving the company before your 12 months contract expired triggered a stiff fee–usually about what an average month might cost. 

Rapid swings in the oil prices over the past two years have made these "budget plan" approaches tougher to maintain.  

Another variation is the fixed rate per gallon contract in which the homeowner locks in a price per gallon, whether prices rose above or dipped below that amount. Some suppliers offer this as a "pre-buy plan" and may allow you to determine how many gallons you want to buy at a pre-determined fixed rate, while amounts above that volume vary in rate.  

Our fixed rate plan expired this month.  We had locked in a good fixed rate of $2.99/gallon a year ago.  Today's price is roughly $4.07/gallon (source: See New York at US EIA).  Depending whom you listen to, prices could go much higher, prices this winter could go well above $4.50. 

Our oil company called to offer a few different contract renewal options: a variable plan (Yikes, who knows what the ceiling would be?), a fixed plan (Yikes, the withdrawal penalty is steep and what if prices drop?), and a hybrid "ceiling plan" that combines aspects of both. 

We went with the ceiling price plan–mainly to avoid a spike in our montlhy household expenses if the oil price really climbs sky high. Some companies call this a "price cap plan."   Here is how it works. 

A ceiling price plan puts a limit on how high your oil price per gallon will go, while binding the home owner to a delivery schedule over 12 months determined by the oil company, not the homeowner. In exchange, your oil price per gallon vary with the market with a small markup over the price of a non-ceiling plan rate, but is guaranteed not to exceed a certain price for one year. Our ceiling price for the next year is $4.369.   

A important side note: Keep those oil delivery tickets the company leaves behind! The ticket shows you two key pieces of information that may or may not show up on your monthly account statement. Monthly bills may only show you how many dollars you owe.  The fuel delivery ticket will show you both the numbers of gallons delivered and the price per gallon.  If you ever want to figure out which plans works best for you, you need all both quantity and price.  

Another note: The contract prices stated here may vary for your supplier or your contract. Good luck. Let me know if you get a better rate!

PS: Air sealing (winterizing, a.k.a. "energizing") your home is the best way to avoid having to buy more oil this coming season at any price!