home oil headache
September 11, 2010 12:27 PM   Subscribe

Can you help me decide if I should buy into our home heating oil co's price cap program?

My home heating oil co sent me a letter offering to let me buy into the price cap program for this year. It will cap my oil cost at $3.299 a gallon, for a one time payment of $130.

From the only bills I have left from last year the prices were $3.09, $3.24 and $3.34. On the bill it says the tank size is 275.

I'm having trouble navigating the gov's eia site and don't know where to go for authoritative info on home oil prices.

I've only lived in apartments that included heat, before so this is a new decision for me. I'm in NYC.

Does it make financial sense to buy in to the price cap?

The heating oil co I use is mandated by my lease, so no creative thinking please.
posted by cestmoi15 to Home & Garden (8 answers total)
Your wording is a little unclear - is this a one-time-ever payment of $130, or a one-time-this-year payment of $130? If it's yearly, this doesn't seem worth it at all assuming future oil prices resemble your historical ones. For example, even if your price stays the highest, at $3.34/gallon, the cap only saves you about 12 or 13 dollars taking the tank from bone dry to full. You'd have to do so 10 times in a year, at that price, to break even. Seems unlikely to me. Of course, if heating oil prices spike, it's a whole different story. On the other hand, if the prices stay under the cap, you threw away $130.

If the $130 is once-ever, this might become more worthwhile, depending on how long you imagine you'll be in the home, since then you don't have to fill up at that price 10 times in one year, but 10 times in however long you live there to break even.

I have no heating-oil expertise whatsoever...but as far as I can tell that's how the math pans out.
posted by Rallon at 12:39 PM on September 11, 2010

A few questions before I can answer:

Is the company a billing company or a COD company?

When is the CAP in effect? (ie, is it for a whole year, just for november through march, or something else?)

Is it an unlimited cap, or do you have to choose how many gallons to cap?

How many gallons did you use last year?

I'm asking because I work at a COD oil company in putnam county, so I know a bit about oil and pricing. We were capping at a price of 2.959 and were NOT recommending it to our customers for a two reasons: 1) we charged a fee to cap. customers could cap in 300 gallon increments, for a $75 fee. so if they know they normally use 800 gal, they'd be capping 900 for a total fee or $225. This adds 25 cents to the price of each gallon (75/300= .25), so essentially we were capping at a price of 3.209. 2) the owner didn't see our price rising above that 3.209 - now, as you are in NYC not putnam, I don't know if that stands for you and if the company is billing it's a whole different story.

Billing companies tend do charge more in general, because your interest and financing charges are built in. In exchange, you get 10 or 30 days to pay. (To illustrate: our price when I left work yesterday was 2.499 and I know that there are some billing companies who are already up in the 3.00 range. OUCH!)

(Prices are going up this year, it's just a question of how much. We are already higher then we were this time last year.)

I know you said that you can't change your oil company, but does your oil company know that? I know that a lot of the bigger billing companies will do a lot of the keep a customer. It might be worth your while to call them up and tell them that you are thinking of switching to a different company because of price and see if there is anything they can do for you. No guarantees, of course, but a lot of companies do match prices, even for caps.

I hope that makes sense. If you can get more information regarding my questions, I may be able to give a better opinion or help!
posted by firei at 12:55 PM on September 11, 2010

Response by poster: Sorry not to be more clear - it is a yearly charge. This year it is Sept. 30 2010- Sept. 30 2011.

They bill me later.

It does not state a gallon cap, so I take it to be unlimited use. It does state that if the price is less than the cap price then we are charged the lower price.

Unfortunately I don't know how much we used last year. I can guestimate total cost if that is useful.

The company doesn't know we have to use them, but I don't feel like I need to pull that feather out of my hat just yet, they've actually been very nice to deal with so far and I really just am trying to figure out if I should take the deal or not.
posted by cestmoi15 at 1:10 PM on September 11, 2010

I would assume that you would probably pay slightly more overall, and that what you're buying is predictability / reduced risk. So it's really a question about your finances. If heating oil prices do spike, could you deal with it, or would you be totally screwed? That kind of thing.
posted by hattifattener at 1:29 PM on September 11, 2010

Persistent tight supply and production declines in some oil producing nations is likely to continue to exert upward pressure on oil prices. But the increasing likelihood of a double dip recession might cause prices to fall. But a cold winter might negate whatever effect a recession might have. Etc. No one here has a crystal ball. Roll the dice.
posted by Crotalus at 3:22 PM on September 11, 2010

You could put the $130 in a savings account or something.... if prices rise, you'll have something to lessen the blow a bit; if they don't, you'll still have $130.
posted by itheearl at 3:24 PM on September 11, 2010

Best answer: Hmmm...the reason I asked how much you used last year is to plug it into this equation:

$ of cap / number of gallons used = how much to add on to the cap price to get the real price per gallon.

the average home uses 800-1200 gal a year, but of course it does depend on the square footage, efficiency of your burner, number of occupants, etc. if we figure on 1000:

130/1000 = .13, so you add .13 to the 3.299 = 3.429, which is higher than all of your prices last year.

If the three deliveries that you have bills for where the only deliveries you took the whole year, the most you could have taken would be around 700 gal (275 gal tanks have a reserve of about 50 gal, but even if your tank had a smaller reserve, you'd have to be out of fuel or almost out of fuel each time for the deliveries to be more than 235 or so). (I don't know if those were the only three deliveries...)

130/700 = .19, so you add .19 to 3.299 = 3.489.

The more oil you use in the year, the better cap price you're getting, essentially, because you get to split that $130 up over more gallons. Neat, huh?

Overall, my vote would be no, because that's a pretty high cap price on top of a pretty high purchasing fee. Either way it is a gamble.

Best of luck, whatever you decide, and I hope this was at least mildly helpful.
posted by firei at 4:13 PM on September 11, 2010

Why would the heating oil company offer a plan that nets them less money ?
I think they are selling the cap to people who like the idea of a cap. It could happen that the company's forecast of the price is wrong and they will lose money selling caps. So you could buy the cap betting that their forecast is wrong.
posted by llc at 9:55 PM on September 11, 2010

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