October 6, 2012

Why the price of heating oil is a hot topic

Mainers are paying more – 18 cents more than the average price at this time last year – despite a sharp drop in demand and a relatively stable supply.

By Edward D. Murphy emurphy@pressherald.com
Staff Writer

Ahh, autumn.

Today's poll: Oil prices

How worried are you about heating oil prices?



Not Very

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John Patriquin/Staff Photographer Tom O’Connell of Downeast Energy delivers heating oil to a residence on Washington Avenue in Portland on Wednesday. The statewide average price for heating oil is now at $3.68 a gallon, according to the Governor’s Energy Office.

click image to enlarge


Mainers are paying less for oil than other New Englanders at this stage of the 2012-13 heating season. Here are statewide averages reported this week by state energy offices:

Maine $3.68

Massachusetts $3.90

Rhode Island $3.83

New Hampshire $3.76

Connecticut $3.88

Vermont $3.72*

*Price in September

The leaves change, temperatures fall and furnaces begin to fire up in the morning, making that familiar sound: ka-ching, ka-ching.

Heating oil prices are up this year, with the statewide average now at $3.68 a gallon, according to the Governor's Energy Office. That's up 9 cents from the average in August and 18 cents above the price at this point of the season in 2011.

The price is up despite the fact that oil use in Maine has plummeted by about half in the last five years.

Homeowners have replaced older, less-efficient burners, insulated their homes better, supplemented their oil furnaces with wood- or gas-fed stoves, and switched to other fuels.

About 70 percent of Maine homes now rely primarily on oil for heat, down from 80 percent just four or five years ago.

Meanwhile, oil supplies have remained relatively stable over the past few years.

That contradiction -- a price increase despite a sharp drop in demand and a relatively stable supply -- suggests that trying to predict what Mainers will be paying for heating oil in a few weeks, let alone a few months, is foolhardy, said Jamie Py, president of the Maine Energy Marketers Association, which represents many Maine oil dealers.

"Normal supply and demand ... has now become the supply and demand of financial instruments," Py said, with the market for oil now dictated mostly by commodity speculators.

Py said it used to be simpler to predict prices, usually by looking at supplies and long-range weather forecasts -- which, by the way, call for a colder and snowier winter this year than last year.

In the last few weeks, the oil market has worked in consumers' favor.

Unease over the direction of the U.S., European and Chinese economies has led speculators to push the price of crude oil down about $7 a barrel since mid-August. On Friday, the price dipped below $90 a barrel, with traders anticipating that slower economic growth will reduce demand for oil.

Prices were much higher earlier this year, peaking at nearly $110 a barrel in February.

John Peters, vice president of Downeast Energy, agrees that pricing has grown more complicated.

He said factors now include the state of various economies around the world, the value of the dollar and the status of political flash points, such as how Iran might react to tighter economic sanctions and the plummeting value of its currency.

"It's all of those things, on any given day, thrown into a pot," he said. "If it were a function of supply and demand," oil would cost far less.

That volatility isn't causing a stampede to plans that guarantee or cap prices, Peters said.

His company has seen slightly more interest in fixed-price plans, in which homeowners buy an entire season's anticipated oil supply, upfront, at a set per-gallon price.

That satisfies customers who want to control their costs, Peters said, knowing that their household budgets for heating oil won't be affected if prices jump 30 or 40 cents a gallon. They're not likely to be upset if they end up paying a few pennies a gallon more than the price they might find by shopping around when they need oil, he said.

Downeast Energy is seeing less interest in price cap plans, Peters said.

Those plans call for customers to pay a per-gallon premium in return for a maximum price for their oil. If the market price is lower when oil is delivered, he said, they pay that lower price, but the premium essentially pays for insurance, guaranteeing that the customers' costs won't spike if prices shoot up.

Fred Moore of Scarborough said he had a fixed-price plan a couple of years ago, but now pays whatever the market price is when the delivery comes. He said he didn't find that the savings justified shelling out a large amount of money each year to lock in a price.

Moore said he considered switching fuels, but stuck with oil. Propane didn't offer a significant savings, he said, and the cost of a natural-gas system was too high.

"The payback was too long," Moore said.

Steven Ross said he has a simple way to control his heating oil costs. He lives alone in a two-bedroom apartment in Portland, he said, and when winter comes along, "I only heat one," closing off the second bedroom and turning its thermostat down.

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


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Today's poll: Oil prices

How worried are you about heating oil prices?



Not Very

View Results