If you are new to oil heat you may not know what a pre-buy heating oil contract is. Essentially, you pre-purchase upfront... based on a specific price... all the oil you will need for the next winter season. Usually this is done based on prices during the summer since typically summer prices are lower.
You might consider this move if you are trying to
These are good reasons to pre-purchase heating fuel ahead of the season. But there are times when things can go wrong.
The years when oil prices trend downward during the heating season is when those who enroll in pre-pay contracts lose money. Some years this can be a considerable amount. This happened in the 2008 - 2009 winter season and during the 2014 - 2015 heating season.
Dramatic drops in the price of oil... which is what happened during those years... can cause oil heat customers who pre-purchased their oil to pay considerably more than those who bought at market price.
One source that was researched mentioned that "pre-purchase programs work to a consumer's advantage on average six out of ten years." The oil market is so volatile that it really is a gamble to purchase oil this way. So about 4 out of 10 years you could end up on the losing end in this game.
There were a few heating oil companies that could not make up losses they encountered due to prices dropping and being left with a high inventory of oil they paid more for thinking prices were going to stay level or at best go up. Therefore, some companies caught with this problem had to go bankrupt.
Now it's rare that this would happen but... it is a risk you need to consider. Because this has happened in some northeastern states more than they it should have, some states have added legislation to further protect consumers.
What happened to the money their customers prepaid? They could not recover it, so they loss it. And that’s something most couldn't afford to have happen.
What can you do to prevent the problematic situations above from happening to you? Experts say you should...
You have to feel confident that the company will have enough capital to cover
an unexpected change when prices drop dramatically.
Keep these points in mind when considering a fuel delivery service to provide this price protection program.