The cliff-like plunge of oil prices this fall has left customers who pre-paid for their winter supply crying the blues, and dealers are seeing red over the expensive oil languishing in their tanks.
And even customers who didn’t lock in rates appear to be suffering collateral damage, with prices staying high as dealers try to move their overpriced oil.
The cliff-like plunge of oil prices this fall has left customers who pre-paid for their winter supply crying the blues, and dealers are seeing red over the expensive oil languishing in their tanks.
And even customers who didn’t lock in rates appear to be suffering collateral damage, with prices staying high as dealers try to move their overpriced oil.
The cost of a barrel of oil fell to $64 during Friday’s trading, its lowest price in a year and less than half the $147 peak it hit in July. But there is a dark side to this otherwise bright spot in the economy: Those who thought they were exercising caution in July and August by locking in prices now find themselves paying a dollar more per gallon than the going rate.
“I didn’t pre-pay last year, and I got screwed,” said Tim, an oil customer in Dalton who asked that his last name — and the name of his oil supplier — not be used. “I did pre-pay this year, and I’m getting screwed.”
Every year, most oil dealers offer pre-pay and budget plans in the summer, allowing customers to lock in a rate for the coming heating season. Last year, pre-pay customers did well — many paid less than $2.70 a gallon and felt warm all over as oil prices jumped to more than $3 in the winter.
When customers lock in a rate, the dealer goes to the commodities market and essentially pre-buys the oil, agreeing to contracts to purchase tens of thousands of gallons at that predetermined price. When the plan works, everyone is happy: The dealer makes a reasonable profit and has the comfort of knowing his business will be steady. The customer saves money and has the peace of mind of knowing his price won’t soar.
When it doesn’t work — as appears to be the case this year — no one is happy.
A Berkshire County oil dealer who spoke on condition of anonymity described his predicament. He offered a pre-pay oil price of about $4.30 a gallon. Knowing that his customers would be less inclined to lock in at such a high price, he went to the commodities market and bought about half what he would normally buy. But when only a quarter of his customers pre-paid, he was stuck with the other half of that very expensive oil.
Now he has to make his money back while trying to compete with dealers who can offer a more current rate. To ease the pain, he can buy cheaper oil on the market now, blend the two, and set his price in between the high and low. But that means his prices aren’t dropping as fast as they could be.
“Everybody wants to be competitive, but it is tough to be competitive when you are losing a dollar a gallon,” he said.
A quick look at oil prices throughout the Berkshires suggests other dealers are faced with the same problem, keeping prices relative high as a result. According to data gathered by newenglandoil.com — which tracks prices throughout the region, including 10 dealers in the Berkshires — the average price per gallon on Friday was $3.25 in the county. In the Pioneer Valley, it was $2.71, and in the Framingham area, it was $3.07.
West Oil in North Adams was one of three companies offering $3.09 a gallon yesterday, the cheapest price in the Berkshires.
Like many dealers, owner Bob West said he found himself with excess pre-paid oil, but instead of trying to sell it to customers throughout the year, he went back to the commodities market and sold it all at once, taking a $300,000 loss.
“It hurts, but you have to look at it as two separate businesses,” he said. “You have your pre-pay business, and that price is locked in. Then you have your street business, and you have to have a fair price on the street.”
West said he knows the pre-pay customers aren’t happy. He tells them he isn’t making any extra in the deal and tries to explain how the market works.
“When you pre-pay, it’s like buying a scratch (lottery) ticket,” he said. “If you buy a $10 ticket and don’t win anything, you don’t go back into the store and ask for your money back.”
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