Propane and Heating Oil Price Protection Plans – The Big Five Misconceptions
There are some common misconceptions when it comes to propane and heating oil price protection plans. And since heating your home is a big expense, it’s important that you have all the right facts so you can make a smart decision about price protection this year.
Misconception #1: When the price for propane or heating oil drops below your fixed price, your heating provider is making a big profit. A reputable heating company secures their propane or heating oil at a fixed price from their supplier at the same time the homeowner does from his/her heating company. This ensures the heating company has enough supply to honor their commitments to their customers through the heating season. Even if the market price drops below the fixed price, the heating company is committed to their contracted price to their supplier, just as the customer is committed to the fixed price given by their heating company.
Misconception #2: The heating company knows where the price of oil will go. There are many factors that affect the cost of oil, including global demand, available inventory, Wall Street speculators, the value of the US dollar and the weather. These factors are unpredictable and uncontrollable. Therefore, it would be impossible for a heating company to predict the price of oil over time.
Misconception #3: Fixed price is the same as downside protection. Fixed price propane and heating oil contracts lock-in a set amount heating fuel gallons at a fixed price per gallon. Fixed price contracts protect customers if the price of oil goes up. However, if the price drops, customers who locked-in still must pay their locked-in price. Downside protection is a bit different. With downside protection, customers pay no more than a fixed price per gallon, but if prices go down, they pay the lower price per gallon. Customers with downside protection benefit if the price goes up since they will not pay more than the locked-in price. But if the price goes down, they will pay the lower price for an additional fee.
Misconception #4: You have an unlimited time to use the gallons you agreed to purchase. Price protection has an end date. Your contract with your fuel agreement ends when you’ve used all the gallons contracted for or at the agreed upon end date.
Misconception #5: A Price protection plan usually saves you money in the long-run. This is not always the case, and customers should be aware that prices can drop. For example, in 2008, the price of oil was climbing quickly and people speculated that it would go higher than it ever did before. Fixed price heating oil contracts averaged $4.85 per gallon during the 2008-2009 season. But by the end of 2008, heating oil prices dropped to $3.00 per gallon. And In 2008, a customer who was on a variable plan paid less to heat their home or business than someone who locked-in their price at $4.85. With this example, a customer with downside protection would have paid a lower price per gallon.
Take comfort in knowing that Irving Energy will provide you with the resources and information you need to make the best possible decision this upcoming heating season. If you have any questions and want to talk to a knowledgeable Irving representative, feel free to give us a call at 1.888.310.1924. We’re here to help.
View our heating oil and propane price protection plan and payment options. And, check out our other articles on price protection or answer the question: is heating oil and propane price protection right for me?
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Posted on May 31, 2011