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Heating Oil & Propane Pricing Options: Your Guide to Getting the Best Deal

Heating costs are continually on the rise. Extreme cold and rising prices make energy costs a real budget buster.

understanding oil and propane pricing options

There are things you can do to help control your annual heating costs like keeping your equipment tuned up, changing your air filters regularly and keeping your thermostat set properly. Another way to control your cost is researching pricing options and determining what is right for you. Each product, heating oil, natural gas, electricity and propane are all priced differently. Today we’re going to look at heating oil, (also called biofuel) and propane. Keep in mind, we are talking propane as used to heat your house. Your cost for propane will be different if you only cook with it or heat your hot water. Those uses typically do not have pricing options available.

Heating Oil & Propane Pricing Options

Market Price

Market price means you will pay the day’s price per gallon on the day you receive product. You are subject to any changing market conditions, up or down and have little security over rising prices. Plus, if you call today and are quoted a price there is a chance it will be different the day you get a delivery. This is normal. You are not under any contract and therefore if the prices change you will notice that change. There are normally no fees associated with this pricing option.

Fixed Price

A fixed price, also called a lock in, means your price will not go up or down for the duration of the contract, typically one or two heating seasons. You lock in your rate and every delivery you receive during the contract year will be at that price. For example if you lock in at $3.25 per gallon and the market goes to $4.50 you will only pay $3.25. However, if the market would fall to $2.95 you would still pay $3.25. Fixed means just that, fixed. This option may include a fee.

Capped Price

A capped price option means your price is capped off and cannot go higher but could go lower. This option can give you the best of both worlds. If prices fall, you will take that advantage of it. If they go above the capped price you will be protected.  For example if you cap your price at $3.25 per gallon and the market goes to $4.50 you’ll only pay $3.25. However, if the market would fall to $2.95 you would still pay $2.95. This option may include a fee.

Pre-Buy Price

With the previous three options you pay for the deliveries as you get them (unless you’re on a payment plan) but with a pre-buy plan you pay upfront for all of your oil. You decide how many gallons you want to buy and pay for them all at once at the pre-buy price. The benefit is there should be no fee to pre-buy  and the rate should be similar to the fixed price rate. The disadvangtage is that once your pre-buy gallons run out you’ll pay market price for remaining deliveries during the contract year (called the heating season). For example, if you pre-buy 700 gallons at $3.25 every delivery you get up to 700 gallons will be at $3.25. If you use 800 gallons during the heating season the remaining 100 gallons would be billed at market price.

Pricing Tips from an Insider

Tip #1: Shop in the spring/summer when energy prices are typically at their lowest. You will most likely get the best deal if you shop for a pricing plan in the late spring or summer months. This is when companies are buying on the Futures Market for the following heating season and they are able to get the best deals.

Tip #2: Fees are likely but don’t hesitate to ask for a reduction. Many people believe that pricing option fees are just a gimmick of the oil company to get more money but the truth is these fees are necessary to secure insurance on product. Cancellation fees are also sometimes put into place because if you leave mid-contract, the company is now stuck with product they prepurchased for you. Think of it this way, the company is buying, and in some cases storing, product for you until you’re ready to use it.

 Tip #3: Ask about cancellation fees. Always be sure to ask about cancellation fees. While you can’t control them necessarily you want to be well-informed if you move and need to pay a fee.

Tip #4: Analyze your options. Don’t assume paying the fee isn’t worth it. If you’re a large consumer (over 800 gallons per heating season) it may be in your interest to pay the fee.

Tip #5: C.O.D. companies will be the cheapest in town for your oil. A Cash On Demand company means you must prepay, be home to pay or leave a check for the delivery driver. There won’t be any pricing options but you will get the best price. If you aren’t loyal to a supplier, you can call around and price check several companies before you buy.

Tip #6: Your heating season/contract year will typically not be Jan-Dec. This can cause slight confusion during your first season.

 

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Comments

  1. Living in the northern parts of the US, heating is always important for much of the year. When I lived in Wyoming, we had to turn on our heat nearly every month of the year. Thus finding affordable heating oil was important, as well as being able to get it to rural locations. I like you tip about shopping in the summer when prices are the lowest. We never thought about it until it started to get cold, but we’ll have to try that now!

    • Danielle says:

      I just talked to my heating company about next year’s propane prices. This is a great time to do it!

  2. Great tips, very helpful. I like your advice about cancellation fees. Most of the companies have cancellation fees, but often people forget to ask them. Make sure to do your research and ask questions, so you don’t have to deal anything unexpected after!

  3. It is so helpful to learn more about heating oil prices and how they work. I like the sound of getting a fixed price, because then it will stay at the same price for my entire contract. It might be best to look at the market right now, just to see if prices seem to be going up or down. If the market seems to be fluctuating a bit too much, then it might be best to just look into a capped price. Thanks for the great post!

  4. I have heard a lot of good things about propane before, so I wanted to use it around the house more. I had no idea that there were so many pricing options, that is good to know. It sounds like the capped price option would be great, as long as the fee isn’t too big.

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