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Homeowners buy together to fight rising heating oil prices - LOHUD.COM

By Khurram Saeed * ksaeed@lohud.com * November 24, 2010

The average cost of a gallon of home-heating oil in the Northeast this winter will be $3.13, a 10.3 percent increase over last year's $2.84 average, the U.S. Energy Information Administration said.

That means the typical homeowner will spend $2,225, or 14.5 percent more, to stay warm this winter, the federal agency said.

"The name of the game this year is volatility," said Daniel Singer, co-president of Robison Oil in Elmsford. "You're going to see a lot of bouncing around."

There are numerous options for heating oil customers to weigh but no guarantee that any of them will save them money.

Residents who rely on natural gas to warm their homes may be in luck, as prices are expected to be lower than last winter.

Although the U.S. Energy Information Administration is projecting a slight increase in natural gas prices, the two utilities that serve Westchester and Rockland counties said residential gas heating bills should be about 5.6 percent lower from November to March.

The typical Orange and Rockland Utilities residential customer will see his or her monthly bills drop from $247 to $233 this year, O&R spokesman Mike Donovan said. The utility has nearly 90,000 natural gas customers in Rockland.

"We base these on the same usage year over year," Donovan said. "Usage drives your bill. If you use more, you pay for more."

Con Edison, which provides natural gas service to 228,000 customers in Westchester, is predicting that the average bill will be about $381 per month this year, down from $403 last year.

"Though the prices are dropping, it's still important to be mindful of conservation," Con Edison spokesman Allan Drury said.

The lower commodity cost for natural gas is due to robust production. There were no interruptions during hurricane season, leading to record levels in underground storage, experts said.

Oil prices rise

Neil Gamson, an economist with the federal Energy Information Administration, said home heating oil prices, like gasoline and jet fuel costs, are dependent on crude oil prices.

 

Crude oil spot prices averaged almost $88 per barrel in November, about $10 per barrel higher than this time last year

"It's gone up since last winter and it's gone up recently as there's a more optimistic viewpoint of the world economy," said Gamson, citing growth in China, India and South America.

"That's driving up the price of crude oil," he said. "Of course, then all petroleum product prices will go up."

Also, the National Oceanic and Atmospheric Administration, a federal agency, projects that this winter will be colder than last, resulting in more heating days.

Not too long ago, Chris Ryan was standing at his child's bus stop, talking with his next-door neighbor about the cost of heating their Briarcliff Manor homes.

Pretty soon, they were comparing home-heating oil prices. Ryan had already been doing that with his mother, who lives in Kent.

It didn't take long for them to confirm what most suspected.

"We realized there was a huge variance in what people were paying," Ryan said this week.

So in 2005, Ryan and three families decided to negotiate with the different energy companies together to get the best prices. They've been doing that ever since, with 25 families taking part, at one time or another, in their small, informal group.

They will collectively buy 20,000 to 25,000 gallons of home-heating oil over 12 months.

Not everyone ends up saving money, but those who do pay an average of 50 cents less for the going price for a gallon of fuel.

Buying options

Most homeowners lack that kind of buying power, but it's worth their time to research their options, said Singer, head of Robison Oil.

Some people ride it out and try to get the most competitive price they can.

Others are looking to lock in a price to protect themselves from the roller-coaster ups and downs of a volatile market.

"It really depends on what your risk tolerance is," Singer said.

Three out every four of his customers let the market dictate what they pay. Those price swings can make or break a budget. Consider that between September 2009 and April of this year, the price of a gallon of heating fuel fluctuated from $2.69 to $3.39.

"Literally last week, we got as high as $3.49," Singer said.

Some people prefer the peace of mind of buying oil at a fixed price. The danger is that if the cost drops, they're committed to paying the price they agreed to.

"It's always my fear that people who lock in a price and get stuck with a higher price, then view their oil supplier as the villain," said Singer, noting the supplier purchased the fuel at that price.

For a small fee, people can sign up for a price cap program. The customer and energy company agree to a ceiling on the per-gallon cost, but if the price drops, the customer pays the lower price.

Securing that flexibility will cost the customer 10 to 20 cents extra per gallon, Singer said.

Another option some people use is to pay for their winter supply of oil upfront. Doing so will earn them a discount of 10 to 20 cents per gallon, Singer said.

Singer doesn't tell customers what to do - "It's like offering advice on how to play at a roulette table" - but he said that six out of the last 10 years, those who rode out the market fared better.

Ryan, the Briarcliff Manor homeowner, said the 15 families in the unofficial collective are using a variety of strategies. Some opt to pre-pay, while others feel better on the fixed price plan. Ryan has capped his price of oil.

"Buying oil recently has become like buying a used car," Ryan said. But doing research "opens the door to negotiation," he said.

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