I just got a letter from our propane supplier and a related contract to
lock in next years supply (900 gallon) at $1.029! I definitely think
that there is more upside risk than downside so we will do this.
As long as it's just a contract and you don't have to prepay any of it,
absolutely. That's about 1/2 of what my last contract fill cost. If they want
money up front (and I expect they do), I'd be very wary.
They give you several choices for payment but money up front is the
cheapest ($1.029). If you make payments it is a few cents higher. With
interest rates as low as they are it makes no sense NOT to pay up front.
It makes a whole lot of sense not to pay up front when you consider that you are
making a bet that the company will still be in business next winter.
If you can take a flyer on $1000, by all means go for it. Just realize that if
that company goes under, you make be scrambing.
BTW: If you'd like to see a good site for propane prices across the US, try
Note that the average wholesale price for propane right now is just under
$1/gallon. With the cost of delivery and storage, your dealer is offering you
pretty close to a loss leader, which is great as long as they honor the deal.
If they are purchasing the propane today, yes. But you still have to account for
storage costs. Plus, this time of year is the cheapest for propane as the
heating season has ended. Next fall, prices will be higher. How much higher is
an open question.
You don't know if the supplier is going to contract for propane next fall, what
the fall futures price is, or if the supplier is betting that the prices will be
as low as they are now and plans to take the risk.
Bottom line - if you are dealing with a large, established supplier who has a
track record for this kind of deal, it may be a risk worth taking. If you are
dealing with a small supplier with a 100 residential accounts and a single
truck, the risk is different. If you annual uage is 900 gallons, I'd think about
buying another 500 gallon tank and filling both now. That way you can always
fill at the end of the heating season at the lowest seasonal cost.
My gut sense is that you should take the offer.
When I changed energy suppliers, I took the fixed
rate, figure it's not likely to go down.
Christopher A. Young
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