Heating Oil Prices

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I don't really know much about how the retail home delivery heating oil industry works.
But, the recent plummet in crude prices has me wondering what kind of fun and games are going to take place between fuel oil dealers and their customers who engaged in fixed price contracts for the coming heating season back when prices were ascending at an unbelievable rate.
I assume the dealers must have entered into futures purchasing contracts with their suppliers to protect them against further price increases and those contracts will have to be honored by the dealers unless they choose bankrupcy instead.
I can forsee that the dealers are going to have a helluva time getting all the customers who entered into guaranteed price contracts with them to cough up what they agreed to pay when the retail market price of heating oil drops significantly. Particularly so if those customers are being negatively hit by other aspects of the current crazy economy and use that as a justification to default on their contracts.
It should be interesting....Educated comments appreciated.
Jeff
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Jeffry Wisnia
(W1BSV + Brass Rat \'57 EE)
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Jeff Wisnia wrote: ...

...
Southwest Airlines in a nutshell---they looked fabulous early on, now they're also hurting in spades as their contracted fuel supplies are still lagging current market prices.
If dealers were wise they didn't forward contract all or had some other hedge positions. Homeowners may be stuck--that would depend on the actual contracts.
For farm inputs (diesel, anhydrous, chemicals, etc.) there's a similar situation/problem. Another is contracted grain to the ethanol producers as an example. Some have defaulted on those _to_ the farmer or grain dealers (local equity elevator operators and similar).
The individual homeowner is probably not out more than a few hundred bucks to perhaps a thou while the others may be looking at up to the million $$ range for larger operations.
Lack of stability in pricing is in many ways worse than absolute price.
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dpb wrote:

Southwest's average hedge for oil is $51/bbl. As long as oil stays above that price, Soutwest is golden. http://www.kiplinger.com/columns/picks/archive/2008/pick0611.htm
This is not forever, though, Southwest's options will run out... about the same time as the price of oil drops back to reasonable.
However, there is the unforseen: Obama could re-instate the ban on offshore drilling and the price of oil will jump back up by 100%.
Southwest, by the way, was not the only airline to insure their costs. Continental and other carriers did the same. But when a minor cash-crunch hit the airlines about a year ago, these companies sold their futures contracts to raise cash.
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HeyBub wrote:

...
...
I can see it's easy to misinterpret intent -- I wasn't intending to imply SW was above actual market but that they're now more nearly in the same boat as the others as prices run the other way and options are more recent.
Don't recall precisely where but within last couple weeks/month(?) saw a much more detailed analysis and while they're still better off than most, not nearly as much an advantage as previously. That analysis also included projections going forward of comparative status under a couple of postulated scenarios which showed gaps narrowing further.
And, yes, all of 'em hedge to a greater or lesser degree...
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I got caught in this, and locked in (not a ceiling, a fixed price) in late August. Ouch.
Homeowners tend to do their heating oil contracts in late summer and early fall, because usually thats just before anticipatec demand drives up prices. This year, of course, that didn't work out quite that way! :-(
But I dont think other concerns like agriculture using fuel year round or with a different seasonality would be caught quite so much as homeowners were this year.
As for people reneging, some are if the penalty in the contract is a lot less than the difference between what they project for costs during the winter going by contract price vs. going by current price. Which is leaving the smaller oil delivery outfits in a lurch.
I plan to stick to contract. I did fabulously with my contract the previous year; I guess this year is my karma-payback ;-) Silly me I neglected to figure in a worldwide economic meltdown starting September 15. I'm taking my crystal ball into the shop for repairs...
Banty
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I've been doing the contract pre-buy for about 15 years now. Some years you win, some years you lose. In the long term, I'm still a little ahead. This year, I will probably lose about $5-600 or so. Not enough to get excited over. There have been years when I came out ahead almost that much. This is just one of the years when I lose.
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That's kinda how I look at it. I do think this is the last time I'll be going for the fixed plan rather than the ceiling price plan. Although in August when I locked in the ceiling price plan had a ceiling price way above the current fixed price, much more than what I'd seen before.
Banty
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Banty wrote:

Oil tanks aren't that expensive. If you'd put in a half dozen 330 gallon tanks you can store a season's worth of fuel. I did this and I buy at several times through out the warm season to average the lower prices. Why play the futures market?
Boden
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And did that help you at all this year? This year, those who buy at current prices during the heating season are the hands down winners.
So I don't see an advantage of your plan. Besides, I kinda like my finished basement space.
Banty
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Banty wrote:

Yes. And it sure helped in the past few years. This year, those who buy at current

I've got plenty of extra space so that is not a concern.

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And dang it all, arn't the prices for repairs out of sight this year? And then the backlog of other units waiting to be repaired and the bumping ahead in line by all those with the extended warranty....
I swear an oath: next time I am going to find the cash for one of them 'consumer-assurance' protection plans on my next crystal ball. But first got to fix that hole in the drywall about the size of that dang-nabit crystal ball.
:<)
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says...

That's RIGHT gosh-darn it. They don't make 'em crystal balls the way they used to.
It's sure disappointing. And this after I found out there's been a huge recall on the model of Make-People-Do-What-I-Want-Wand I have... no surprise because that hasn't worked in a long time!
Banty
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If you have a contract dont buy from that dealer or you will likely pay what you agreed to pay.
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If you have a contract dont buy from that dealer or you will likely pay what you agreed to pay.
***********************************************
Some contracts do not allow you to buy from another dealer. I don't know how well that can be enforced.
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Shrug. Makes no difference here. I pay once a year, up front, and get a "locked-in" rate, which is about .25 cents a gallon less than the current "pay as you go" rate. I "locked-in" at $3.59, but that only means that they can't deduct any more than that per gallon for any deliveries for the entire year. If the price drops below the "lock-in" rate, then I pay less. My delivery last week was $3.29 a gallon. If oil drops down to last year's rates, I will probably be paid up for nearly an extra year.
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On Tue, 11 Nov 2008 13:46:23 -0500, Jeff Wisnia

If you want some information for negotiations, you can look here. Latest info should be up after 1300 on 13 Nov: www.eia.doe.gov/emeu/steo/pub/contents.html and/or here http://tonto.eia.doe.gov/oog/info/hopu/hopu.asp If you muck around a bit on the basic tonto site, you can wander off in all sorts of interesting directions. I'm not locked in but want some ammo when I start negotiations for first delivery for oil and propane systems
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Jeff Wisnia wrote:

Unless someone or their lawyer can prove some fraud in the contract, I don't see how customers who signed a legal contract for such a futures purchase has any recourse to get out of it, nor should they. The erosion of personal responsibility in this country is completely out of control and has to stop.
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Pete C. wrote:

I agree with you but the idea of no responsibility for anything has become rampant. Who knows how to stop it. Look at the GM situation, they focused everything on building fluffed up trucks to the point that from everything I read they didn't even bother with R&D on anything else. So now instead of a normal be responsible for what you did situation where the execs would be tossed under the bus for bad decision making and the company picking what version of bankruptcy they think might work which ultimately would mean the company would be reborn or its assets picked over by others with better ideas they want us to bail them out. Same idea with the various brokerages where many of these people because of their behavior contributed to the implosion of that industry and screwing normal responsible folks getting rewarded with huge golden parachute payments and mega bonuses even though they screwed things up.
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Pete C. wrote:

And I think it's only going to get worse during the current economic crunch. Too many of folks who have been confusing want with need all their lives and now can't afford to pay for what they've bought, will make up ridiculous reasons to blame it all on the sellers and lenders so they can self-justify welching on their obligations.
I truly think I was fortunate to have started my career and marriage during what I have come to regard some of the best years our country has ever had (the 1950s).
When I look around now and see believable statistics like . . . . 50% of current births in the USA are to unwed mothers and, 20% of american students don't achieve high school diplomas (And at the risk of my being damned as un PC, that student percentage is even higher if considering only African American and Hispanics.)
Couple those kind of statistics with our nearly complete exporting of factory jobs which would have provided work to non-high school grads, I think I have good reason to fear for the America my grandkids are heading into.
Just my .02,
Jeff
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Jeffry Wisnia
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Jeff Wisnia wrote:

Yes, but we do need to be sure we deal with the sellers / lenders who's behavior has ranged from deceptive to fraudulent.

I expect you are correct.

This needs further breakdown since the lump figure is misleading. Only the teenage portion of this is really a significant issue. There are many single parents (both sexes) who do just fine.
and, 20% of american

Yes, the demographic are not even. If there is one glimmer of hope, this latest election may help on that front by lending some credibility to the teachers trying to tell the disaffected student that they have life options other than drug dealer or gang member if they study hard.

Yes, between the failing education system shifting from helping students find the right career path for them to telling them that they are garbage if they don't get into a trendy "high tech" field, and the loss of manufacturing jobs (which is not just due to outsourcing, some parts of the country have actively tried to get rid of manufacturers in favor of bio-tech and other trendy stuff), we have made it impossible for a sizable portion of our population to make a reasonable living.
The fact is that all are not created equal and no amount of education will make it possible for 100% of the population to hold a high tech engineering job. We have devalued skilled crucial professions, treating those who have the skills as some sort of second class citizens, simply because they aren't trendy. Our politicians ridicule plumbers who expect to get fair pay for their skills and knowledge.
I don't see any way out of this mess, easy or not, and I am quite thankful that I do not have any offspring who are going to have to suffer through this collapsing civilization.
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