Buyer?s Remorse Chills New Englanders Who Locked in Oil Prices
By Tom Moroney and Brian K. Sullivan - Nov. 26 (Bloomberg)
Buyer's remorse is afflicting tens of thousands of customers in New England, where heating oil is used more than in any other U.S. region. Their eagerness to nail down a guaranteed rate backfired when oil prices fell.The term "suckered" is used by people who lost this bet.
"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.
"Some dealers had lines out the door," Cota said. "People were coming in with their checkbooks to sign contracts. There was a palpable panic in the cold-weather states."
Along about June, time comes to decide about oil price lock in. Yes, we heat the Maine Owl residence with no. 2 fuel oil. This year caused a bit of a panic because the price had skyrocketed to about $4.70/gal by June. In April we had filled at the astonishing price of $4.05/gal, causing a surprise $600 budget shortfall. Should we now lock in $4.80 in anticipation of $6 or $7 prices by heating season?
My strategy was not to lock. I told the oil dealer to stop automatic fills and that I would be buying oil on the open market from the cheapest dealer at the cash price when I choose to fill. This was precisely the right call this year. Coupled with strong conservation measures, I'm now forecasting that we will end up buying about 575 gallons at $2.50 or less per gallon. The bill for this year will be more like $1400, rather than the $3000 it might have been under a lock.
Since 2003, I've made this call six times and only locked once for 2005-6. That was a good call, saving about $300. Last year, I did not lock and that was the wrong call. That $600 could have been saved. Other years I have not analyzed but my sense is locking would have been a wash to costing slightly more.
I'd like to say I foresaw the early-fall financial crash. But this is not the case. It was more a sense that with all the fuel switching going on in the spring and summer, demand would be suppressed, and it would be hard for prices to maintain. My break point was like $4, at or below which I probably would have locked. When the crash came, the floor on the oil price was pulled out and lock in became moot.
