I am always struck at the way heating oil prices are constantly changing.
The number one question from my customers seems to be"What are oil prices going to be during the winter?" Should I consider some kind of price protection program?
There seems to be two main driving factors that I have seen over my 30 years in the retail heating oil industry.
The first driving factor has mostly to do with speculation. The past few months are an indicator of this. Most are reporting that we have so much product that we do not know where to put it. Yet in the past few months the price of crude was going up. The market continues to be flooded by all the major producing countries.The extent of speculation is enormous, though the daily production of oil in the U.S. is around 9 million b/d, the WTI crude oil contract trades more than 100 times the produced quantity, How can we be trading more than the amount being produced?
The second driving factor is what we would call market fundamentals.
This simply refers to the law of supply and demand. High supply +low demand= low prices.Conversely, low supply+high demand= higher prices.
With all of this being said, it would not surprise me to see crude oil hovering around $35-$40 per barrel. This number would translate to average retail heating oil prices between $1.39-$2.10 per gallon.
There is always an additional cost for retail heating oil companies to administer any protection plan. This cost is passed on to the consumer.
Why pay for the speculation? This year pay as you go is my final recommendation today. Next year may be different.
S. Barkin - Fuel Oil Operations Manager.