Lock in heating oil prices

That’s what TheStreet.com says.

Winter oil prices have declined only twice over the past 10 years. That means that 80% of the time, signing up for a fixed-price program was the right decision.

Unfortunately that means locking in the price at $4.60 a gallon for next winter, when the fixed-price was $2.60 at this time last year.

When we lived in Connecticut this past winter, heating oil was $3.50-3.72 and we were paying $150 a week to heat the house in the worst of winter, this with the thermostat set at 64 during the day and 55 at night. At $4.60 a gallon, it will cost the average homeowner there $800-1000 more to heat during the winter than at $3.72. And if they don’t lock in and prices go to $5 or $6…

Locking in prices is done via the futures market. The heating oil vendor buys contracts for delivery of oil at a future date based on the current futures price. Thus, his supply is guaranteed at that price. Aside from speculation, this is a major function of futures, to lock in prices. Jewelery manufacturers routinely do this. A customer says, I want 5000 gold bracelets to be delivered next month. They lock in the gold price now, base their price to the customer on that, then take delivery of the gold next month when they need it. Thus, they don’t have to worry about price fluctuations. And neither do homeowners if they lock in heating oil prices.

This of course applies to homeowners who can afford such prices. Some will not be able to.