Understanding Our Price Protection Program
To enroll in our price protection program please contact our office @ 845-297-5580
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. If market prices fall, so does your price.
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 2011. As you can see, the price of oil is much more volatile today than it was in the past. In fact, this past heating season, wholesale heating oil prices bounced up and down as much as 30%. 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. Keep in mind, a price cap is not a guarantee of the lowest fuel prices. Rather, it provides peace-of-mind in knowing that your price cannot skyrocket regardless of what the market does.
Compare the benefits of our pre-buy and price cap plans and decide for yourself.
When you pre-purchase your fuel, you lock in a preseason rate, and guarantee that your price will not go up during the winter no matter what happens in world oil markets. You make a single payment upfront, specifying the number of gallons you wish to buy. However, there are downsides. If you order too little oil, you must pay market prices for additional oil for the rest of the season. If oil prices fall during the heating season, you’re stuck with the price you paid at the start of the season.
The price cap option is available for those who have signed up for our monthly payment plan. If oil prices skyrocket, your price will never go above the cap. But if prices fall for a sustained period, so will the price you pay for fuel. Any time our daily rate is lower than the cap, you pay the lower amount. However, our suppliers charge us a hefty premium for this type of upside and downside price protection. So if you choose the price cap option, a 30 cents per gallon fee will be added to your bill (spread evenly through your monthly payments).
Whichever option you choose, price protection is not about getting the cheapest price, it's about limiting your risk.