Heating Oil Regret: Locked In at a High

Oct. 16, 2008— -- This summer, like so many past years, Bob Forguites decided to buy his home heating oil early and lock in his price for the winter. Oil was selling for about $4.50 a gallon back then, and it looked as if it wasn't about to fall. Forguites locked in at $4.10 a gallon.

"It was a good price at that time," Forguites recalled.

But now with the global economy near or in a recession, oil prices have plummeted to about $3 a gallon in his area of southern Vermont. He is stuck paying $4.10 through the winter.

"In the years past, we've turned out well because of this agreement," he said. "This year is just different."

Forguites isn't just some homeowner. As the town manger of Springfield, Vt., he locked in the price for 250,000 gallons of heating oil for the town and its school district.

That's more than $1 million for fuel that would be about $250,000 cheaper if he had waited.

Forguites has locked in the price for the town's heating oil for the last several years and said the move has saved the town money every year until now.

"Traditionally, the prices tend to go up once the heating season starts. We've done that for a number of years," he said. "We're trying to get some changes, but I don't know if we'll be successful."

"We didn't know what was going to happen to the world economy."

One state over in New Hampshire, Bob Garside has seen homeowners in similar situations, who locked in rates this summer -- prepaying for a winter's worth of oil -- and now are mad because prices are so much lower.

Garside, president of the Oil Heat Council of New Hampshire, which represents about 150 oil suppliers, or 80 percent of the state's heating oil supply, said that once a contract is signed, there is no changing it.

"The people who bought high are unfortunately stuck with that price this winter," he said.

Oil Suppliers Decide Not to Offer Locked Rates

Back in the spring and summer, Garside said, prices were $4.49 to $4.79 a gallon. Today they are at $3.29 to $3.49.

Some suppliers -- but not all -- were offering "downside protection," insurance allowing some people to get the lower price if prices fell. But Garside said that insurance carried roughly a 40-cent-a-gallon premium. The typical home in New Hampshire uses about 700 gallons of heating oil each year. That would be an extra $280 a year just for the insurance.

"Most people weren't willing to pay that high a premium," Garside said.

Many oil suppliers didn't even offer a lock-in option this year.

"They didn't want to get involved with it because of the volatility in the market," Garside said.

George Winslow is the owner of City Fuel in Manchester, N.H., one of those businesses that decided not to offer the lock-in option this year.

"We resisted the fixed-price programs because we felt at the time that the prices were at their highest," Winslow said. "We're gratified that we steered people away from that program."

"You frankly hate to pass those kinds of bills on to people, knowing that they will have difficulty paying them," he added.

City Fuel does offer a cap program, where for about an extra $40 a month customers can put a ceiling of $4.89 per gallon on their fuel. Winslow said about 35 percent to 40 percent of his customers chose that option this year.

Cheaper Oil

Scott Jenkins, a homeowner in Salem, N.H., decided not to lock in his rate.

"We had decided to ride out the volatility of the market, and I think, based on how much home heating oil has dropped, it was a good decision," Jenkins said.

Jenkins looked at how the economy was slowing and figured that gas and heating oil prices would soon fall.

"We kind of felt that home heating oil was at the peak at the point we would have locked in," he said. "If we had locked in, we would probably be kicking ourselves."

So what advice does Garside have for homeowners who did lock in their rate?

"They just have to live with it," he said, "and think if they want to do it again next year."