I live in Massachusetts and my natural gas is
supplied by Nstar. I have been given the option to lock in
my gas price for this heating season at $1.2624 per therm.
It is also noted that, as of Nov.6, the gas supply charge
"for the winter" is $1.2424.
Is this a good idea do you think? I will need to guess
whether gas prices will go up in the NE. I do know that
the NE is expected to be colder than normal this year.
Your ideas would be much appreciated!
The way I see it, it's like putting money on a commodity in the stock
market. You can go short (bet that it will drop) and you can go long
(betting that it will go up. I've been watching the price of Natural gas. It
was more than double what it is now just a short time ago. It's been
hovering around $6.50 to $7.50 per unit that they use, for a long time even
though oil was dropping. I think the down side of it is here now and that it
will rise in price in the near term future. I would try to lock in a price
around what you have now. Either that or just put your gas money on a
roulette wheel and take red or black :')
What exactly does "for the winter" mean? It there a normal seasonal
summer/winter difference with fluctuations? If so, I'd say it is close
enough to the lock in rate that it will most likely be higher in January so
locking is a good deal. It is not so high that you'd suffer great loss if
it did not change. You'd have peace of mind and if it went to $1.60 you'd
have tears of joy.
This may be not easy to do but I would try to find another supply. There
is something immoral in trying to con you into buying a future supply at
a higher price. A supplier who tries to turn a biz transaction into a
Las Vegas style toss of the dice doesn't deserve my business.
One of the first principles learned in an MBA program is: "Trade variable
costs for fixed costs at every opportunity." The same applies to profits.
In the case at hand, the gas company may have locked in NG at, say,
$1.00/therm (they've traded a variable costs for fixed cost), and are now
trying to lock in a fixed profit.
In the non-MBA world, this process is called "insurance."
OTOH, while prices were escalating, they were in good shape.
It's "risk management" and any sensible company will do what they can.
As I noted in a previous thread, in many ways price instability is far
worse economic difficulty than is absolute price level.
Almost all of them did. When they hit their ususal cash-crunch, they sold
them. Only Southwest maintained their futures contracts and, until the end
of this year, have been buying jet fuel at an average price of $53/bbl.
The price they are quoting seems at least 25% higher than what it
could be if they were fair and current, recent price declines in Ng
are not reflected in your price, its printed material? so its maybe a
month old. Wait next offer will be lower or call for a present price.
Google nat gas price charts and compare what you paid in the past to
the charts. I would not lock in at what they offer now call them and
tell us what they offer now. Gasolene here was 4.50 today its 2.11.
Thanks all for your help. Both sides of the argument
are good, but I think I will probably lock in. It's really the
old supply-demand argument that swayed me, and I
am thinking it will be very cold in the NE for most of the
winter (based on everything I read.) We shall see.
I have oil and could have locked in last winter at $2.35/gallon. I
didn't and ended up paying an average of $3.10/gallon - got burned.
This year when it came time to lock in oil was skyrocketing. I had an
offer to lock in at $4.70. I didn't. Now it's back down to $2.35/
gallon, roughly half of what I could have locked in for. I have
neighbors who are beside themselves for locking in and have to pay
$1000 to get out of their contract - which might actually be worth it
now. It's pretty horrible that speculators are allowed to manipulate
the commodity markets the way they do. I think that the only people
who should be allowed to buy commodities are the people who can
actually take ownership of what they buy.
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