Locked In and Knocked Out

November 30, 2008 By Tisha (Kulak) Tolar

A few months ago, oil prices were skyrocketing and there seemed little hope that the prices would go anywhere else but up in the near future. Because of that belief, many individual customers and business chose to lock into the current oil price to protect their finances during the cold winter months. However, over the last few weeks, oil prices have dropped considerably for home heating oil as well as at the gas pumps, leaving much of the nation breathing a sigh of relief - that is except for those who are now locked in and knocked out.

The Pre-Buy Program Option

Many oil companies created prepayment plans to allow customers to lock in the cost of the heating oil they would need for the winter during pre-winter months in order to get the lowest prices possible. The prices would remain consistent, no matter what happened to prices during the winter months. The program worked great for families who needed to know their oil prices for the year in order to create their financial budget numbers. Customers would have to come up with payment in full, or at least a deposit and a follow up payment to participate in the program. Typically, the prepayment plans were popular with the customers of the oil companies. In fact, some oil companies lost customers when the discontinued the locked-in pricing program.

Now, as heating oil prices are going down steadily, customers who locked in to prices a few months ago are seriously mad. They will still have to pay the high prices for oil while those customers who didn’t lock in, perhaps because they didn’t have the money upfront, will enjoy the lower prices.

What Can Be Done?

There is nothing the oil companies can do about it either. Most oil companies pre-buy the oil and paid for the order at the going price of heating oil at the time of the pre-buy. Essentially, the oil company’s hands are tied and customers need to honor the original contract. Customers will still continue to receive oil throughout the winter months, having already paid for it in full. But those who did not lock in the rates will likely be getting more oil for the same price.

Customers have inquired about the oil company working with them by reducing the price stated in the original contract. However, many companies speculate that in doing so, it would leave many of the oil companies, especially the mom and pop operations flailing in bankruptcy. Due to the drastic fluctuation in oil prices, many of the oil companies will no longer offer the pre-buy program options.

Down the Road

Whether or not you have pre-paid for this season’s home heating oil, be assured you are still getting oil for the season. When next year’s pre-buy option is up for consideration, it may be a matter of wait-and-see to decide if this option is still the right one for you financially.

Posted in budgeting, financial plans, personal finance perspectives

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