Oil heat customers are offered heating oil contracts which are created to protect them against rising fuel oil prices. What plans are available? There are several price protection programs offered such as:
There are so many ways fuel oil companies can devise these heating oil contracts for their programs, so you should shop around. Their purpose is to help limit your oil heat costs, when oil prices rise. When utilized correctly, you can save on your fuel costs. But just like everything else, there are some pros and cons to each program.
A Pre-payment program is when the cost of oil is figured up according to your projected use for the next season. In this heating oil price protection program, you are charged based on what the oil price is during pre-season, which is a lower price per gallon than you will pay during the heating season. You pre-pay for your oil in one lump sum for the whole season; this will lock in your price for the heating season.
But there have been some big problems that come up with pre-purchase heating oil contracts.
Cap Plans are designed to give a customer peace of mind knowing that the price of oil will not go over a specific amount per gallon. But in exchange for this service, you usually pay a higher price per gallon and you have to sign a contract.
So, under the best of circumstances in a cap plan heating oil contract, if prices rise above the cap price, you don’t have to worry about paying the higher prices. But if prices drop significantly, what happens?
In the last instance, a cap plan will not be the best choice for saving money.
And because of the above risks mentioned, customers are rejecting
cap plans and pre-payment plans and are not signing contracts.
This is where the oil heat dealer enters a contract to purchase heating oil wholesale for a specific price for its customers. After adding on overhead and a profit margin, the dealer then offers you a fixed price for a given period time. During this time you don't have to worry about the costs going up or down, even though the price during the season will be changing.
This may be a good choice for you if...
But what happens when prices trend down? You could lose badly.
This happened in the years 2008 - 09 and in during the 2014 -15 winter season. Fixed price heating oil contract customers paid much more than those who bought at market price.
These contracts cannot be broken, so you are stuck paying more when you sign these in seasons where the prices go down. This is especially bad when prices trend way down. You lose big time when that happens. But in years where prices trend up... then you are the winner if you are under a contract.
It's a risk you have to decide whether over the long run it's worth it.
So when it comes to signing any heating oil contracts...