Buyer’s Remorse Chills New Englanders Who Locked in Oil Prices

[Robbien]

Source: Bloomberg

Nov. 26 (Bloomberg) -- Max Hartshorne was thrilled to lock in a winter’s worth of heating oil at $4.09 a gallon.

That was in July. Now heating oil is $2.75 a gallon and Hartshorne can’t break his contract with the dealer.

“I was just so angry,” said Hartshorne, 50, who uses about 900 gallons of oil to warm his home in South Deerfield, Massachusetts, each winter. “I said, ‘You guys can’t be serious about $4.09 a gallon.’ And he said to me, ‘We’re deadly serious.’”

. . .

“There was a belief that heating oil could rise to $6 or $7 a gallon,” based partly on predictions by Goldman Sachs Group Inc. and billionaire oilman T. Boone Pickens, said Matt Cota, executive director of the 120-member Vermont Fuel Dealers Association in Montpelier.

. . .

Connecticut alone has 682,000 oil customers, with about 112,000, or 16 percent, locked into a price, according to the Independent Connecticut Petroleum Association in Cromwell.

Read more: http://www.bloomberg.com/apps/news?pid=20601213&sid=aLwn3aKqve4Q&refer=home

---

The article goes on to say this oil dealer is now begging the US government to get in on a bailout loan. They do all their business on credit and have maxed out.

Scoundrels, all of them.

[Veritas_et_Aequitas]

1. That happened to my grandmother.

Nearly broke her financially.

[MNDemNY]

8. Why was your grandmother,

who from your statement is of limited means, playing the futures market, anyway? That IS what these deals were. So if oil went the other way, (as she BETTED it would), would she be in any better shape?????

[customerserviceguy]

22. That's a little harsh

"playing the futures market" is what people who have no intention of possessing or using the oil do. They just try to make a buck from legalized gambling.

But on the other hand, it was indeed a case of grandma seeing if she could beat the experts, and if the price had gone to 6 or 7 bucks a gallon, she would have felt quite prudent compared to her neighbors. All for the same price. I imagine that whatever she'd have had to do without at the four bucks a gallon, she'll have to do without at two bucks a gallon.

Sharpies always beat the little guy every day. Trying to outsmart people that live, sleep, eat and breathe a commodity usually ends up like this.

[MNDemNY]

27. The only thing "harsh" is the lesson learned.

[customerserviceguy]

32. It was a harsh lesson, but

to compare a consumer trying to deal with price uncertainty on a needed commodity, with the type of gambling speculator who created the problem in the first damn place is what I thought went over the top here.

[MNDemNY]

35. I wish it were, "over thetop", but it is very...

much akin . It's very much the same thing. "wishing for bad luck, and knockin' on wood"

[Hannah Bell]

53. It was nothing like it. She was a consumer contracting for a good at an

offered price.

[MNDemNY]

56. And she bought it. Too bad.

[Hannah Bell]

69. yes, too bad. however, she's not a "futures speculator".

[atimetocome]

48. Your comments are rude. She was being prudent. Had

she not stocked up and prices doubled she would be sitting in the cold.
Very cruel of you. I hope you never have to sit in the cold of winter.

[MNDemNY]

57. Prudent? didn't work out so well, now did it? Prudent? I think not.

[atimetocome]

60. No, it did not. Sad. But planning ahead for the winter on a

budget is the wise thing to do. grow up.

[MNDemNY]

61. Wise thing? then quite bitching about the outcome.

[LanternWaste]

67. I think you confuse

I think you confuse "bitching" with relating a story to the community at DU which was both personally and directly relevant to the story contained in the OP.

Unless of course you believe the only time that we should relate personal and anecdotal stories are when they result in positive endings only. Although I would hazard that a few posters would still attempt to belittle those too...

[Marrah_G]

74. Wake up on the wrong side of the bed this morning?

Whether you realize it or not, your comments are really come across as cold, mean and lacking in any basic compassion.

[CreekDog]

65. i guess you treat everybody like crap, not just me

next time i won't take it personally.

[Midlodemocrat]

77. Don't. It's a pattern.

[elleng]

49. Utilities did the same,

and ended up similarly.

You are right, she and they were not speculating or playing the futures market; they were doing business.

[JerseygirlCT]

55. Many of us use plans with a budget

so that we don't find ourselves unpleasantly surprised in the middle of winter with hugely increased oil prices.

My plan should repay the differences eventually. Hopefully, the grandmother's will do something of the same. But it's quite common up here.

Not exactly gambling. More like a common sense approach to long winters.

[atimetocome]

59. yes, it was commonsence to plan ahead. Too bad we have

so many rude posters here on DU.

My folks did the same.

[JerseygirlCT]

63. We've found it saves a whole lot of worry through the winter

I can't spend every month wondering what we'll get hit with. I need to know what to expect. Ours will be higher, it turns out, than it would have had we just gambled. But they will adjust downward at the end of the year (they keep a sort of running balance) when we've paid more than they've paid for the oil.

For us, it's worth it.

[Marrah_G]

73. Because she was trying to avoid the 6 bucks a gal reports that were going around

Heating this winter was a real source of panic for many of us this year.

When I bought my home in 2001 I was paying about 1000 dollars per season for Oil. This year, in July, I was looking at 5 times that much and I was panicking. Heat would cost 25% of my monthly paycheck.

It has gone down and I am incredibly thankful that I did not lock in the price. I almost did.

[Marrah_G]

76. She can just get another company to deliver what she needs when she needs it

Without a contract.

[MaineDem]

78. But many of these locked-in contracts require one to purchase a minimum amount

Usually it's 300 gallons. If one buys from another dealer they still owe the contracted dealer for that minimum amount.

And in many cases, there were provisions to get a lower price if the cost went down. It cost a bit more but, in this case, it would have been worth it.

[Marrah_G]

80. Ahh okay- I get it.

[msongs]

2. sometimes commodity speculators take a hit, oil or otherwise nt

[lib_wit_it]

18. Calling a person just trying to save some money on the cost of keeping their family from freezing in

the winter a "commodities speculator" is rather "Rethuglican", isn't it? I mean, come on!

[CreekDog]

66. these aren't commodities traders we're talking about, they are people worried about having heat

this winter. they bought because they worried they couldn't afford to heat their homes had the prices kept going up.

where in the hell is your compassion?

you sound like a Republican.

[thoughtanarchist]

3. This year

Many dealers would not allow lock-ins or pre-buys.

Most, in fact, in my area.

You have to wonder if they knew something we didn't.

[Robbien]

6. Yep. For a while there we were getting harrassed by oil dealers selling contracts

Several calls a day. Then all of a sudden, before the Wall Street price per barrel started dropping, the calls stopped. Yep, they knew the hedge funders were ready to pull out of commodities.

[natrat]

4. with scumbags like goldman sachs out there it pays to ignore the professionals

these bastards are tied into the oil oligarchs and know exactly what's up

[GodlessBiker]

5. I have a feeling when their contracts are up, those customers will take their business elsewhere.

[Sydnie]

11. Here's a question that I have always wanted an answer to

Never having had a contract for my oil deliveries, what is to stop these people from purchasing oil from another provider at a lower cost even though they had a contract with this supplier? I mean, do they have to agree to so many gallons of purchase on these contracts or are they open ended so that any amount would meet the contract?

It might sound simple (and might be simple since I have never done this myself) but why don't they just choose another supplier for their needs? The suppliers haven't pre-purchased so many gallons to meet the contract have they?

Just how does this work?

[Robbien]

14. As I understand it

You make a contract with the oil dealer who distributes the oil to your utility co. Your utility company then sets up that dealer as your supplier.

I expect there is an exclusivity clause in the contract which won't allow the utility company to set up alternative companies for you.

[Marrah_G]

75. You can always buy Oil on a per delivery basis.

I have never contracted with a company.

[GodlessBiker]

17. We have oil contracts with suppliers directly. Unless you lock in, you can change any time.

There probably is an exclusivity clause, particularly if you have locked in, but how they would find out is anyone's guess (other than you not using any oil from them from December to March).

[Sydnie]

33. That's what I thought

so, you order a minimal amount of oil from them at the beginning of the season and again at the end of the season and get the bulk from someone else.

I know where I am most oil companies are not part of a 'utility' group so you call whom ever you want to deliver it. Although some will not deliver in the cold months if you have not ordered from them before but if you shop around you can always find someone that will if you establish now.

I had a need for some oil two winters ago when my supplier was out. I called around, found a company that would deliver on an emergency basis if I ordered at least 100 gallons. They have been my supplier ever since. The price was lower and they would come out in an emergency to deliver to me. That sealed the deal for me.

[MaineDem]

79. I've always seen a minimum number of gallons required in the contracts

Even if you don't use all that you contracted for, you have to pay for it.

We don't burn all that much heating oil so we haven't signed up for a contract over the past few years. Some years we've done okay; other years not so much.

[geomon666]

7. You gotta love these fucking companies huh?

"Oh yeah, we'll be more than happy to lock you in at that price. And then we're going to drop the price along with a foot on your ass."

[MNDemNY]

9. Well, those customers placed a bet that didn't pay off.

Don't gamble the "rent" money.

[geomon666]

16. They didn't know they were playing with a rigged deck. n/t

[MNDemNY]

29. The "house" always wins.

:shrug:

[geomon666]

30. I'm out of gambling puns.

x(

[NashVegas]

42. Tell That to AIG

Who are now getting their second $100M infusion ...

[MNDemNY]

46. It is good to be king.

[hack89]

71. The heating oil companies locked into high prices themselves

your local home town heating oil company does not control the price - they contract their oil supplies from a wholesale company further up the food chain. They still have to pay their supplier at the price they contracted - if they lower the price the consumer pays then how do they pay their bills?

[jberryhill]

81. Ummm.... no. The heating oil dealers were not speculating on their customer contracts

The heating oil dealers themselves were securing a supply on the SAME basis.

[Idealism]

10. It happened to companies aswell

FPL locked in futures contracts for energy and are paying a price for it now. However a spokesman for the company said they would have been worse off not hedging energy prices starting two years ago, then hedging and losing money now.

[slackmaster]

40. It happened to the state of California back in 2000 with electrical power

:argh:

[nykym]

12. OK so they locked in with

a company and are stuck with high prices from that company. Is there anyting that says they have to buy from them only? Why not go elsewhere and get a lower price? They can't force you to buy thier oil can they?

[lse7581011]

36. As A Matter Of Fact

They can! I prebought 800 gallons at $4.59. I am not a speculator but I signed a contract that says I can't buy from anyone else from October 1-March 31! I lost. But, I'm warm!

[fasttense]

51. Here in my rural piece of heaven, there is only one oil delivery service.

If I were to have done a pre-buy, I would have paid upfront for 4 to 6 hundred gallons of heating oil, which they would deliver for no additional cost through out the year. So, we would have paid up front and it would save nothing to go to someone else.

However, I have learned that for some very strange reason, no matter how much I pre-buy, it is all gone by late spring. But when I don't pre-buy, I end up using about half as much.

The rumor around here is that if you pre-buy in large quantities, the delivery truck will frequently give your oil to others and charge your larger account (because they are rich and really wont notice) for the heating oil.

And it seems that paying month to month no matter how high heating oil gets, I spend a lot less. When your a monopoly I guess you can cheat people without concern.

[ben_meyers]

13. Here is an example of why deflation is just as

damaging as inflation.

[slackmaster]

45. It's also a good example of how deflation works

The only people who "won" were a few futures traders who got out in time.

[Spouting Horn]

62. And the people who

did not "pre-buy."

One thing is for certain...the price of oil will spike in the future, then it will crash, again.

[cobalt1999]

15. I doubt they would have been bitching about their contract if oil was $7/gallon

They gambled. If they had won, they'd be bragging.

[WriteDown]

20. Southwest airlines won not too long ago....

and their fuel volume has to be enormous.

[WriteDown]

19. Not at all....

The article is very clear that the oil dealers get loans for working capital to tide them over from the time an oil order is placed with a supplier and the time the customer pays. They are NOT looking for a “bailout” but rather asking for the gov’t to force the banks to loan the money. Also, there is nothing in the article that states the dealers have “maxed out” on their credit or do all their business on credit.



From the article:

Access to Credit

Dealers are further hurt by the freeze in credit markets, said Eugene Guilford Jr., executive director of the Connecticut trade group. In the past, dealers obtained loans to ease cash flow after paying their suppliers and waiting for payment by customers.

Guilford met with Treasury officials in Washington last week on behalf of nine New England heating oil trade groups. The dealers are submitting a list of local banks that have denied them loans, asking the government to intercede.

“We’re not looking for a bailout,” Guilford said. “These are loans.”

[elleng]

50. Auto dealers having similar problems;

ordinary loans to keep in business month to month becoming unavailable.

[4lbs]

21. One thing overlooked with the "locking" of the price is that the guy knew EXACTLY how much money

he'd be paying this winter, and could budget for it.

$4.09 per gallon times 900 gallons = $3681.00

He knew this amount back in July.

What if he had not "locked" and the price did go higher, to $5 or $6 per gallon? Then we'd be hearing about how he wished he had locked in at the lower price.

There's always a flip-side that people conveniently forget. When you "lock-in" a price, you inherently allow for the risk that it will drop and you many end up paying more.

[Autumn Colors]

23. One other thing...

Is that this is usually part of the annual service contract, which includes the yearly cleaning and repair contract for the furnace.

Once the contract is signed, then they can estimate how much you pay per month and it's the same thing every month. You pay it over 12 months and then at the end of the year, you either get a refund (or can carry over the credit to the next year) or you settle up what's owed for the year.

For me, it really has always been about being able to budget a set amount over 12 months.

This year, we switched over to electric baseboard heating (with the eventual goal being to put solar panels up in a year or two). This is the first month we've had to use the heat quite a bit, so we'll see what the electric bill is next week and hopefully be able to budget for the rest of the winter.

I really didn't want to use home heating oil again this year. I realize for a couple years, we'll be using power from the utility company, but we don't have the $20,000 to go solar (and maybe the price will come down in a year or two).

EDIT: The oil co. who delivered to my old house usually had different contracts you could choose. One was that you locked in a price, but you would pay whichever was LOWER, the current rate or the price lock. A second plan was just a strict rate lock. The third was an even lower rate, but you had to commit to buying a certain amount of oil for the season.

[4lbs]

26. Hmm.. Interesting to know that.

I've only lived in places where the "heating" was done by metered natural gas furnaces.

Looks like the guy in the OP got the second type of plan, the strict rate lock. If it was the first one, he likely wouldn't have been upset.

[hack89]

72. There is a third option

which I use. It sets a cap rate which you will never pay over. But you pay actual market rate (which right now is significantly lower than the cap) when the fuel is delivered. The catch is that you have to sign up for a budget plan where you pay a fixed amount every month. We like the idea of being able to budget energy costs(we do the same for electricity).

[Piewhacket]

28. Sure, players of equal bargaining power...

get to "lock in" their bet with a contract. Freedom to contract is a
constitutional right, and a good thing.

But these are consumers in an environment where an organized crime syndicate
was in charge of both the "price" and the sheriff's office. So I don't want to
hear "freedom to contract" or "free market" or such crap in a rigged market.
THESE CONTACTS are subject to renegotiation and unwinding (however complicated),
and frankly I'd like to see them renegotiated with pending RICO indictments
sitting on the consumer side of the negotiating table, and the State AG
grinning in the wings.

So what will they want, 20 years or market price.
What will they do, what will they do? Something stupid, I figure.

[northernlights]

24. not gambling or speculation -- survival!

I'm locked in at $3.75/gallon for 400 gallons.

Predictions here in Maine were $6 or even $7/barrel this winter. At those prices, I'd be choosing between heating and eating by February, period.

"Locking in" is really just a pre-purchase at summertime prices. No different than filling your freezer with meat while it's on sale, versus paying full price as you use it. The contracts are for a set amount of oil at a set price.

There are school districts up here that are locked in higher than I am. There were co-ops set up by cities to help protect their local residents that are locked in higher than me.

The local dealers aren't being jerks. There is no way out of the contracts because, at least up here in Maine, the local dealers are legally required to purchase 75% of the oil when a prepurchase contract is signed. That is because last year, a couple of smaller dealers *did* speculate with pre-purchase $$, went bankrupt and left a bunch of people with no heat in the middle of a horrific winter. These people had to buy oil a 2nd time from somewhere else -- and were out to the tune of thousands of dollars.

The thing is, right now it's depressing. BUT if war breaks out, if the shipping lanes are blocked, if the Somalian pirates shut down the oil biz for the winter...then prices will skyrocket again and I'll be relieved.

In the meantime, at least the lower cost to drive helps take a little of the sting out. And if I sell my house before the contract is up, the dealer'll have to find me to sue me, lol.

[jpak]

25. They should call up the hedge funds that ran up the price of oil this summer and ask for a bailout

motherfuckers

:mad:

[Lance_Boyle]

31. Yep, and I locked in my Intel shares at $18

why won't they take those back and let me buy them at today's price of $13.68? It's a damned conspiracy! :eyes:

[Robbien]

34. You had a choice

You had money and out of all alternatives you decided to gamble it on the stock market.

People need to heat their homes. They don't have a choice. Sure they decided to heat their homes at a certain rate but their action wasn't an arbitrary use of their money to make more money gambling. They were trying to obtain a necessity at the lowest price possible.

[WriteDown]

37. What if this was a vacation home?

My cousin has a ski home in Maine. Does he deserve our sympathy?

[northernlights]

38. For most of us it's our only home

It was freeze the price or freeze to death.

Those with vacation homes can drain the pipes and turn off the heat for the winter. They aren't forced to heat them.

I'm not complaining about what happened. I'm actually equally or more pissed at the money we were forced to spend over the past year when gas and oil prices doubled due to speculators. I cut my driving back to minimal when prices were high. Now they're low and it's too cold to spend a little time at the beach or take the dog to the park to play with his friends...and I still need to cut back to help make up for the oil hit.

We're just damned if we do and damned if we don't.

[Lance_Boyle]

44. they had a choice, too

Pay at the current (summer) level, or pay at the future (winter(unknown)) level. They chose to pay at the summer level, thinking it would be lower than the winter level. Bad guess in this case. They'd be ahead of the game had that actually been the case, but it was not. And the argument of oil being a necessity doesn't get you very far, either. The grocery store doesn't refund you anything if you buy milk one week and then find that it's cheaper the next week.

[slackmaster]

39. Maybe Hugo Chavez will bail them out

:hide:

[Mari333]

41. so glad i didnt lock in

the minute the prices hit just under 2 bucks a gallon i was on the horn calling the oil co here. i have a large fuel tank in my basement. the guy who came out told me he was really busy that day, i guess i wasnt the only one who was making sure i got it at a low price.

[harmonicon]

43. I'm selling oil for $100 a gallon

Better lock in now, because it's going up to $700,000 a gallon come December.

[bread_and_roses]

47. Unbelievable. Calling people trying to keep warm speculators - depraved

What is wrong with you people? Have you all been so conned by the Free-Marketeers that you think we should all be isolate, independent units making the best "deal" we can with other Free Marketeers? I bet you also think it is reasonable for people to buy their own health insurance "based on their own needs" - as if any of us know we won't be in an auto accident tomorrow or be diagnosed with some obscure cancer. Imperfect information leads - even in the totally rational and controlled personality - to imperfect decisions.

People who heat with oil were worried - very worried - when oil kept going up. They were afraid they would not get through the winter. Did any of you ever wake up on a -20 degree morning with no heat in the house? I heat with oil and I have. (Lucky for us, we did not lock in over the summer, for various reasons, but I'll be damned if I'm going to gloat over those that did - they made the best decision they could in the circumstance.) If you have an elderly person or an infant/small child in the house it's pretty damn scary to see your breath in the house. We have a wood stove, and so it's not a true emergency if we run out - but if it's really cold, the stove can only heat the air in its' immediate area. Still, we won't die. Old people can freeze; babies can't handle very cold air.

Your comparison is not even very apt.

http://dictionary.reference.com/browse/speculate

spec⋅u⋅late  3. to engage in any business transaction involving considerable risk or the chance of large gains, esp. to buy and sell commodities, stocks, etc., in the expectation of a quick or very large profit

While you may stretch the common usage of "speculator" in this instance and call their attempt at prudence a "transaction involving considerable risk," the people in question did so in an attempt to minimize their own risk of freezing to death - NOT to make a profit by resale.

And, in fact, you are using the word in it's market usage, where the more apt description of a "speculator" is:

http://dictionary.reference.com/browse/speculator

A person who trades (i.e. derivatives, commodities, bonds, equities or currencies) with a higher-than-average risk, in return for a higher-than-average profit potential. Speculators take large risks, especially with respect to anticipating future price movements, or gambling, in the hopes of making quick, large gains.

Investopedia Commentary

Speculator - Speculators are typically sophisticated, high risk-taking investors with expertise in the market(s) to which they are trading and will usually use highly leveraged investments such as futures and options.

I guess if I buy canned tomatoes on sale I'm also engaged in "commodities speculation." Right.

I think anyone making such a ridiculous comparison is morally depraved.

[AngryAmish]

52. but...but...but...peak oil!!!!whateverhappenedto peak oil!1!QQ!

[JerseygirlCT]

54. Oh yeah. Lots of us are getting whacked.

It's always with a bit of mixed feelings that you drive by the gas station and watch the prices drop. Great at the car, but you know you're getting screwed big time at home!

[jazzjunkysue]

58. I almost fell for that, and put in a propane heater, for the same $$.

I absolutely love it. And it sips propane and keeps me toasty warm, with no mess, no wood, no pellets and no pollution.

If you're in this mess, go to www.rinnaius.com and put in a rinnai heater.

Get off oil, entirely.

For the cost of one winter of oil, I put in the heater and bought enough propane for half the winter.

[FreeStateDemocrat]

64. Buy some space heaters if you're only locked in at price and not an amount you have to buy.

Zone heating can save a lot, especially at that price.

[JVS]

68. What they bought was peace of mind. Expensive peace of mind, but still they didn't get cheated.

It's unfortunate that so many people won't enjoy the savings of the drop in oil prices recently, but it isn't as though they lose money on this deal. They had budgeted over the summer to pay $4-5/ gallon and that's what they will pay.

[jody]

70. Good news is fear that oil prices would skyrocket prompted more people to vote for Obama giving him

a decisive win.

IMO fear of increasing oil prices clearly associated with Bush and by implication McCain didn't hurt Obama.

It feels good for we Dems to again control Senate, House, and White House.

Now we can show voters that not only can we get elected, we can govern! :thumbsup:

[MrSlayer]

82. A contract is a contract.

He'd be feeling pretty good if it was the other way around. Sometimes you fuck yourself going for the bigger, better deal. He's going to have to eat it.