EIA, This Week In Petroleum, Propane: Prices, Stocks, Production, Imports & Demand
Posted on 10/15/2006 7:28:38 AM PDT by thackney
SYKESVILLE - When James Schwartz signed a contract last summer locking in home heating oil for the winter at $2.79 a gallon, it seemed like a safe bet. Crude oil prices had surged and gasoline was above three bucks a gallon. Could $3 fuel oil be far behind?
But crude has dropped nearly 25 percent from its mid-July peak of $78.40 a barrel. And other heating-oil customers in the Baltimore area are paying as little $2.12 a gallon to heat their homes - 24 percent less than Mr. Schwartz is paying.
Nationally, retail home-heating oil prices averaged $2.39 for the week ending Oct. 2, compared with $2.69 a year earlier, according to the federal Energy Information Administration.
Mr. Schwartz, a 61-year-old social worker and retired Navy officer, learned a lesson about speculating on commodities, which is what he did by locking in a future price.
"I looked at my scratched crystal ball and the only place I saw the price going was up," said Mr. Schwartz, A Sykesville resident. "It seemed like the best bet - but then again, I'm not a financial analyst."
A forecast released Tuesday by the Department of Energy said natural gas customers should expect to pay an average of $119 less this winter compared to last year, a decrease of 13 percent, while fuel oil users will pay $91 more, an increase of 6 percent. The National Oceanic Atmospheric Administration also projected Tuesday that most of the country will see above-normal winter temperatures.
Price volatility catches even professional speculators off guard, which is why consumer advocates advise homeowners and small businesses not to bite on long-term, fixed-price fuel deals.
"Wall Street hedge funds and investment banks have energy traders that are paid tens of millions of dollars to manage risks and to try to predict energy prices, and lots of times they get it wrong," said Tyson Slocum, research director for the energy program at Public Citizen, Ralph Nader's Washington-based watchdog group.
Energy analyst James L. Williams of WTRG Economics in London, Ark., said fixed-price contracts don't make sense for most people.
"If you are a person on a fixed income and you know you can afford the heating oil at the locked-in price, and you know you can't afford it at 20 cents higher, you might consider it locking it in just to keep you from freezing in the dark," he said. "Myself, I wouldn't do it. I'd just go ahead and ride it out."
Neither the Energy Information Administration nor the industry-funded Petroleum Industry Research Foundation track the number of heating-oil customers who lock in prices each year. The nation's 10 million oil-heated households are concentrated in the Northeast, where many suppliers began offering fixed-price plans in the late 1990s, said foundation President Larry Goldstein.
"It was the volatility of the market that really kind of forced everyone's hand," he said. "The world had gotten very volatile and a number of customers wanted the certainty of knowing what their budgeted cost was going to be for the wintertime."
Mr. Goldstein likened the contracts to insurance policies. He said providing the insurance is costly to fuel-oil dealers, who typically buy futures contracts to ensure a deliverable supply.
Jack Sullivan, chief executive officer of the New England Fuel Institute, a trade group in Watertown, Mass., for about 1,000 heating-oil dealers in six states, said customers have demanded fixed-price plans and shunned dealers who don't offer them.
"For the most part, it originates with customers who absolutely want to be locked in," Sullivan said.
Customers often pay a premium- about $40 a year in Mr. Schwartz' case - to lock in a price. The contracts typically have cancellation clauses requiring customers to pay a penalty - about $100 in Mr. Schwartz' case - to void the deal.
Some dealers also offer price caps, guaranteeing that a customer won't pay more than a set amount for fuel oil. Price-caps are generally cheaper than fixed-price deals, according to the Pennsylvania Attorney General's Office, but they can get complicated under rules that differ from dealer to dealer.
Price guarantees are less common for natural gas, but they are increasingly being offered as utility deregulation removes constraints on companies and enables customers to choose their supplier. According to the Department of Energy, more than half of the country's 62 million residential natural gas customers have access to so-called customer choice programs.
Natural gas prices have declined more sharply than heating oil. On Oct. 5, natural gas futures settled at $6.30 per 1,000 cubic feet on the New York Mercantile Exchange, less than half of what gas was selling for at the same time last year.
Mr. Schwartz, who lives with his wife and their cat in a three-bedroom, 2,400-square foot home about 15 miles west of Baltimore, said he decided after some calculations to stick with his fixed-price contract rather than pay the cancellation fee.
"If I buy out of it, I'm going to end up paying $140" in contract fees he said. "It would take two and a half to three deliveries of oil for me to make up the difference."
How come these stories never talk about propane?
TANSTAAFL!
How come then, does Centerpoint (out of Minneapolis) is saying that their natural gas will be 14% HIGHER this year than last ??
Very strange
If the 6 month weather prediction is accurate, this year will be an El Niño year, I'll be able to save on my fuel bill, and the northeast will be buried in the snow.
Hey, if you want to play the futures market, you accept the risk!
California SHOULD have done that several years ago (2003), but chose not to. Then they complained when they had to pay "spot market" prices.
Gambling is, well, a gamble.
Something's not right.
He's locked in at $2.79. Other customers are paying $2.12 -- a savings of $.67 per gallon.
If his buyout is $140, his "break even" is 200 gallons. That's nothing. I go through as much as 400 gallons/month when it's in the teens.
I thought propane prices were even worse.
Thank you. I was waiting for someone to run the numbers.
I locked in the propane price for home heating in August and the price has dropped a BUNCH since then. To get out of the contract, one has to pay the difference between the current price and the locked in price, so one might as well just go with it. Most people around this area sign contracts yearly.
I don't know. I can't find consumer information like they have about oil and gas.
My current contract comes up at the end of Dec. I am hoping for a drop. That would be great. I now am locked at $2.20/gal.
Someone convinced him otherwise. There is something missing from the story.
the old saying hits home...."you'se pays your moneys and you'se takes your chances!"....typical article....he locked in the rate he thought would be the most advanteous to him...what if heating oil had gone up...this article would never have been written....gambling/stock market/oil futures are all a risk...there are winners and losers!!!
how come no lib/dems are now not screaming in the msm for an investigation that the gasoline prices have been lowered about $0.75 in the past month?????
EIA, This Week In Petroleum, Propane: Prices, Stocks, Production, Imports & Demand
Thanks.
Residential prices have stayed pretty high compared to wholesale cost. I hope that's due to contracts. Mine comes up in two months and I am hoping to get a good price.
Why would he admit that? Nobody else admits they are not a financial analyst even while publishing their gut feel predictions of where gold, petro, housing will be some future time and it hardly ever turns out to be where it is when we get there.
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