Enroll in Burch Oil’s price protection program. On this page, you will learn more about the process of protecting your fuel price for this heating season and put together a wealth of information so you can make an educated decision.
For starters, just go to our FAQ page that answers the most common questions we get from customers about our price protection program.
UNDERSTANDING CAP PRICES
A price cap protects you from both rising and falling prices. If you are on our price cap program, no matter how high world oil prices go, your price won’t skyrocket. And if market prices fall, your price comes down too.
There is, however, a fee associated with this protection because it has become very expensive to offer this type of insurance. The following graph illustrates why this is so.
These graphs represent typical two-week periods in 1995 and in 2010. As you can see, the price of oil is much more volatile today, on a day-to-day basis, than it was in the past. In fact, this past heating season, wholesale heating oil prices bounced up and down as much as 15%. The cost of the price cap fee is based on this volatility, along with how far in advance we purchase options for a price cap. The fee fluctuates based on these two factors.
This helps explain why the fee we have to charge for our price cap option is higher today than in earlier years. Traditionally, we would buy oil to cover the needs of our customers, and then buy a financial “hedge,” or insurance policy, to protect ourselves if market prices fell below our purchase price. If prices did fall, we would sell back our original supply of oil to our supplier and purchase new oil at the lower price.
In recent years, however, the market has been so volatile—and the risks associated with hedge insurance so great—that the price of this insurance has increased dramatically. (See chart.) Therefore, in order to continue to offer our price cap option, we must pass along the increased cost of the insurance to you in the form of a fee.
An analogy can be made with flood insurance. If you live in a flood-prone area, the premiums are a lot more than if you lived on high ground far from rivers and streams.
The energy markets remain prone to volatility. Securing price protection in this type of market costs us a premium because chances are good that we are going to use the price cap insurance we purchased.
Although overall prices are much lower than last year, no one can predict when the next storm may come.
OIL VS. GAS
Oil vs. natural gas: Which makes more sense for heating your home?
You make many choices that affect your household budget as well as the comfort and safety of your family. One of the most important decisions is how to heat your home. When comparing oil and natural gas, it’s important to keep in mind the following:
1. Price spikes are temporary. Even though the price of oil has shot up recently, historical trends suggest that it will fall again. In the past, every sharp rise in oil prices has been followed by a corresponding drop.
2. Prices fluctuate in every energy market. As a result, it really doesn’t make economic sense to convert from oil to natural gas. In fact, natural gas prices are currently higher than they have been since January 2006.
3. There are hidden costs to converting equipment from oil to natural gas. Consider the following numbers:
- Convert to natural gas: $1,700
- New oil system: $0
- Convert to natural gas: $1,500
- New oil system: $0
- Convert to natural gas: starts at $2,900
- New oil system: starts at $2,900
- Convert to natural gas: $6,100
- New oil system: $2,900
Unfortunately, no one can answer this question. While prices may seem high now, they are considerably lower than two years ago. Fuel prices are just following a natural trend of ups and downs as a result of market conditions.
Some of the factors that can cause fuel prices to rise and fall are:
- Inventory
- Demand
- The economy
- Severe weather
- Geopolitical events
- Speculation
There is a strong consensus that speculation has played an outsized role in the price extremes we have seen in recent years. Speculators from giant banks, hedge funds, and even pension funds “bet” on which way the fuel markets will move, hoping to make money from their investments.
Speculators don’t use or deliver a single drop of fuel. For them, volatility isn’t a problem; it’s an opportunity. But homeowners get caught in the whipsaw effect of increased costs and uncertainty, and it hits them in their wallets. For fuel dealers, the cost of hedging programs—the “tool” we use to protect your price—has risen dramatically.
There is legislation pending or under consideration that would prevent excess speculation. But regardless of what transpires from this effort, you can take matters into your own hands by doing everything you can to reduce the amount of energy your home uses. We have lots of ideas to help you with this.
Fuel prices are cyclical by nature, but the spike of 2008 was definitely an exception, not the rule. Although propane (OR OIL) prices have risen since hitting a low, fuel markets have generally been more stable.
Here are some more ways you can minimize your winter heating bills and maximize your comfort.
- Remember that efficiency beats switching fuels. The Consumer Energy Council of America says switching fuels is a “costly and long-term gamble;” you can lose thousands in conversion and installation costs. To reduce your fuel bills, the best solution is to invest in efficiency.
- Make sure your system is operating at peak efficiency by having a professional tune-up. It can help you save as much as 5% on your annual fuel bills.
- Evaluate your home’s insulation. You can save 25% or more by properly insulating ceilings, and by sealing, caulking and weatherstripping your windows and doors.
At Burch Oil, we appreciate your business, and we will continue doing everything possible to give you the best value for your hard-earned money. If you are interested to know more about our price protection program, just click here.
