Two years ago, consumers were begging their local heating oil delivery companies to renegotiate the terms of their pre-paid home heating oil contracts. With most contracts signed when the price of heating oil was over $4.25/gallon, consumers became outraged when heating oil prices quickly fell by over 50%.
Consumers thought they were doing the “responsible thing” by pre-paying only to find themselves having overpaid for the promise of future oil deliveries. The common response from the oil delivery companies was often: “We’re so sorry, but unfortunately there’s nothing we can do for you. That’s the risk you take when you pre-buy your oil“. Well, the tide has turned for the 2010/2011 heating season, and the heating oil delivery companies are beginning to feel the pinch.
Earlier this summer I wrote an article on whether or not you should pre-buy your home heating oil for the 2010/2011 heating season. At the time the article was published, readers were reporting pre-buy prices of around $2.65/gallon in the Northeast. This seemed like a good price for me and I stated that I would jump on the opportunity as soon as my local oil delivery company released their pre-buy prices and contracts for the coming season.
By the time my local delivery company established their pre-buy prices, two months had passed and the cost was now $2.99/gallon for #2 heating oil. The price of oil had fluctuated a lot over the last few months and I decided that I would wait a little longer to see if the pre-buy prices went down.
Last week I finally called back the local oil delivery company and asked them what their daily cash price was. I was kindly told by the operator that it was $2.55/gallon. This was good news to me since I had always been giving at least a $.10 discount over the cash price when I had pre-paid for my heating oil in the past. Fully expecting a pre-pay option of $2.45/gallon, I was shocked when the customer service rep came back with the original $2.99/gallon price I had been quoted two months before.
Me: “You’re telling me I can “pre-pay” for my home heating oil today for $0.45/gallon more than your “cash” price?”
Oil Company: ”Umm…yes sir. If you’re interested in ”downside” price protection, you have the option of paying an additional $0.40/gallon so you are protected in the event that oil prices fall throughout the season”.
I honestly couldn’t believe what I was hearing, I could either opt to pay the cash price for each delivery of oil that was brought to my house (currently $2.55/gallon), or I could pay an extra $0.85/gallon now for all my future oil deliveries. Yes there is always the possibility the price of heating oil could rise over $0.85 over a few months, but with the World Economy in a slump, I just don’t see this happening. I declined the company’s pre-buy offer and informed them that I would just pay as I went.
Oil Company: “Well sir…hold on just a minute! You’re a valuable customer; let me see if there is anything I can do for you.” After a minute or so delay, the representative came back on the line. “Good news sir…I was able to get you approved for $2.79/gallon if you pre-buy today.”
For a minute I actually felt like I was negotiating the price of a used car from a shady dealership.
Me: “No thank you, I’m going to stick with the cash price option.”
Then it dawned on me…The oil delivery company was still on the hook for pre-buying all the oil from their wholesalers at a higher price than the market was presently able to support. They have promised to buy a certain quantity of oil for more than they can sell it for and where getting desperate to cut their losses. Perhaps this will be the season of oil companies coming to the consumers begging for mercy. For all of our sakes, lets hope at least a few suckers sign up for their offers. After all, if these delivery companies go under, who’s going to deliver our heating oil?
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