March 13, 2010

Riding the oil roller coaster

EDWARD D

— By . MURPHY

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Photos by John Patriquin/Staff Photographer This is a two-line cutline that goes here, and that’s what still goes here, and that’s what still goes here. Can go two lines here with info provided below and in the story Sat., Oct. 18, 2008. Jeremy Stein stands in front of his Portland home where he switched oil price plans from a fixed to a capped plan.

Staff Writer

The dramatic plunge in crude oil prices from their record high in July is leaving consumers almost as woozy as the sharp climb that started last spring.

For most, it's a good kind of woozy. But it does have some residential and commercial customers regretting the fixed-priced contracts they signed this summer.

Cathy Fanjoy, business manager for School Administrative District 17, locked in most of the district's oil supply at $3.88 a gallon in July and the rest at $3.67 in August, when prices started to fall.

''It was a good deal at the time we locked in, and nobody could have predicted what would happen,'' said Fanjoy, who handles business matters for the district, which includes the towns of Harrison, Hebron, Norway, Otisfield, Oxford, South Paris, Waterford and West Paris.

Prices for home heating oil in Maine peaked at $4.72 a gallon in July, the time of year when many homeowners commit to deals for the following winter with their oil companies.

Since then, heating oil prices have followed the sharp drop in crude oil prices from nearly $150 a barrel to about $70.

The latest Governor's Office of Energy Independence and Security survey, released Thursday, found a statewide average price of $3.62 a gallon for heating oil.

The Web site maineoil.com said the average price in the Portland area was substantially lower: $2.82 a gallon on Friday.

The roller-coaster ride is exactly the kind of trajectory that many consumers sought to avoid by locking into fixed- or capped-price programs in July, although the thinking at the time was that people were getting on at the bottom of the ride, rather than at the high point.

Jeremy Stein, who lives in Portland's West End, said he locked in this summer at a fixed price of $4.49 a gallon, then tried to switch to a capped-price plan when oil prices started dropping.

Initially, his oil company said no.

''I pitched myself as a good customer,'' Stein said, and the company relented because the deadline for signing up for a capped plan had just barely passed.

David Loughran, a spokesman for the Maine attorney general, said his office has had some calls from consumers who were anxious to find out whether they could get out of fixed-price contracts that obligated them to pay a set price.

When those contracts were signed in July, prices around $4.50 a gallon didn't seem unreasonable, given that crude oil prices had been on a steady climb for months and showed no signs of abating.

Loughran said that as long as oil dealers don't engage in any deceptive practices, a contract is a contract.

''There's nothing to guarantee that the price you got back in July isn't going to be a deal come February,'' Loughran said.

Jamie Py, executive director of the Maine Oil Dealers Association, said dealers don't like having unhappy customers, but they are required by law to buy an option on the oil that a customer will need when the customer signs a fixed- or capped-price contract.

''Some dealers tried to steer people away from a fixed price,'' Py said, because they didn't think the record prices would hold. ''If you were fixed when we were at $147 a barrel, most people didn't think it would stay at that price, and you'd have an unhappy customer.''

Many of those who didn't choose fixed-price contracts opted instead for cap plans, which set a ceiling on what the customer pays.

Mark Norton of New Gloucester is happy with his oil price deal, which calls for him to pay no more than $4.60 a gallon.

He bought into a capped-price plan that allows him to pay less if the cash price is lower when his oil is delivered.

Norton noted that his potential top price is higher than it might have been, based on prevailing prices when he signed the deal with his oil company, because it allows him to take advantage of lower prices at the time of delivery.

He said the protection against sharp price hikes is worth it.

''Who knows -- in another 60 or 90 days, it could be right back up,'' he said.

Py said cap prices carry a higher potential price per gallon because dealers not only buy an oil option to make sure they can get the supply, but also buy the right to sell oil at a set price to hedge against falling prices.

That option costs dealers about 40 cents a gallon these days, Py said, but allows them to pass lower prices on to customers.

John Peters, president of Downeast Energy, said about half of his customers are on some sort of set-price plan. About two-thirds of them have capped prices, he said, and about one-third went for fixed prices.

''We set our prices when crude oil was hitting an all-time record,'' he said. ''People were looking for some predictability.''

Many of those who opted for fixed prices decided to avoid the 30- to 40-cents-per-gallon surcharge for capped prices, he said, and ''we're hearing from them now.''

But Downeast has already bought the options on oil for those customers and can't get out of its contracts, he said.

Peters said the company didn't try to advise customers toward one plan or the other.

But he noted that for his own home, he went for the capped-price plan.

He said he thought prices might drop as quickly as they rose, but ''I was wrong: Prices ran down a heck of a lot faster than they ran up.''

There's no way to tell where prices will go, as Fanjoy in SAD 17 has learned the hard way.

She said the school district didn't have a fixed price last winter and ''we were making (budget) cuts all year to keep oil in the tanks.''

Now, Fanjoy said, she's looking at locking into a price for the budget year that starts July 1, 2009.

''I don't think we'll see it this low again,'' she said, but ''we don't have a crystal ball.''

Staff Writer Edward D. Murphy can be contacted at 791-6465 or at:

emurphy@pressherald.com

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