My gas company just sent me a letter offering to sign up for a fixed price
(@ $1.949/gallon) of propane until April 30, 2010. I don't remember them
sending any such letter last year which got me thinking maybe they
anticipate a price drop? I realize that no one has a crystal ball (a
working one :-)) but what is the collective wisdom of this group saying -
is it a good idea to sign up for $1.949/gallon fixed propane (in PA)
until next spring?
My theory on all these 'fixed price' deals, both oil & propane, is
that the dealer probably knows more about the market than I do. He is
in business to make money.
My fuel oil company has offered me a deal for the past 5 years. I've
passed every year, but I check the numbers in the spring. They won
every time, save one. [especially last year]
The first 2 yrs have a $200 'contract fee' which includes a cleaning.
The other years were $100 'contract fee.
From this year back-
2.59 2.39 [so far]
If I had put $100 up front, and contracted for 100 gallons more than I
use, I would have 'saved' 72cents per gallon in the 2007-8 season. I
used 318 gallons so I would have come out $120 ahead.
What this buys the dealer is customer loyalty. [I've stuck with the
same folks for 25yrs anyway because they are reliable.] In the
one year I would have saved, when they sent me the plan at the
beginning of the next year I might have bitten because I already had a
100 gallon credit-- and that was the year they were nearly $2 off.
In 2005 it looks like I saved a bit- but I only used 270 gallons that
year. $113 save- $100 fee- and for some bizarre reason they wanted me
to contract for 621 gallons that yr.. So I'd have been tying up an
extra $700 that I'm sure I saved $13 on somewhere.
How much propane will you use in a season? Can you buy a tank big
enough to hold it? Then shop in the summer and buy from whoever
gives you the best price.
Well, that's pretty much my line of thinking, too. I've yet to see a
for-profit business that had betterment of the client as their primary
objective. Besides, my gas company does not need to buy my loyalty - they
already have me by my ... bills - they have exclusive rights in this
development and actually own the tank. There are no strings attached to
the fixed price offer (at least from what I can read in the letter) but,
like I said, in this case they probably don't even need any.
I did some research online about propane pricing but all the data seems
way off (based on last year's prices) - in $2.50+/gallon in which case the
offer would make no sense whatsoever to the gas company. So, they must
know something general public does not in order to come up with the offer.
My hopes are that someone in this group might follow heating costs trends
closer than my amateur self and can possible share their finds here.
I more or less agree with Jim.
I know nothing about propane.
In May I got one of those offer for $9.00 per MCF of natural. Last March the
delivered price was 14.80 something. Current price at that time was about
10.80. Price has dropped even more since then.
Did a little research online and found out the bottom had fallen out of the
market and the well head price was about $4.50. There is about a 90 day
delay in price adjustments for stuff in the pipeline.
I ignored the offer. My current bill reflects a delivered price of 3.61 per
MCF. Gee! I could have been locked in at $9.00
Our budget amount went from $144 per month last year to $72 this year.
I suspect propane will follow the general market.
Just to show you the difference in geographical locations, I recently
contracted my 2009/2010 propane for $1.299/gallon in SE Iowa. I figure
that there is more upside risk on my part than downside risk thus I went
for it. To get this price I had to prepay it all upfront which is fine
because interest rates are so low I could have not made much on the
Yeah, I look several times a day and I would not put a penny in that
market. I think that you had a false rally that is beginning to falter.
Through Darby-Direct you can get a three year Step Up CD at 3, 4, & 5
percent with a penalty free chance to get out at the end of each
anniversary. No anything great but a hell of a lot better then most.
Rule #1-- Don't watch the DOW- especially several times a day.
I'll put your money where my mouth is.<g> Open a $500 Scottrade
account, buy 38 shares of Alcoa. Today it is trading at $12.80. Don't
look at it until the heating season is over. Lets say April 1st.
If my 20% is good Alcoa will be trading above $15.36 by April 1 2010.
[and you'll be more than $100 ahead]
Maybe, maybe not, if you're looking only at the money.
The general rule is to trade an existing variable expense for a fixed one at
every opportunity. This allows better budgeting, forcasting, and planning.
No surprises is good. Very good.
This notion can be overwhelmed by a significantly lower price, but not
Suppose you sign up for $1.95/gallon deal. That means that the propane is
worth that much to you irrespective of what someone else might pay. You
should be economically indifferent (though perhaps not intellectually) if
there ends up a 50% price swing either way - you've already budgeted the
amount and have moved on.
The alternative to a futures contract, is to adjust your behavior based on
price swings: If the price goes up, you put on a sweater, if the price goes
down you sell some of your propane to the fool who locked in a higher price.
I'd be reluctant to ascribe some malevolent intent to your supplier. The
theory that he has some secret knowledge and it using it to rip-off his
existing customers is not a good business strategy - and he knows it. He's
probably just trying to hedge the uncertainites of the future. That is, he's
probably been offered gas at $1.85 and he's trying to determine how much to
contract for (based on what he knows he can sell at $1.95).
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