Home Heating Oil Price Predictions for the 2012/2013 Winter Heating Season

In just a few short months, homeowners in the northern parts of the US will once again be faced with a decision to pre-buy their home heating oil.  To help aid in this decision, I am once again offering my home heating oil price predictions for the fall of 2012 and winter of 2013.

Pre-buying home heating oil via pre-paid or pre-purchase contracts, can be a great way to save money on heating oil costs during the cold winter heating season. However, if you’re not fully aware of the risks, you can also end up paying way too much money for heating oil as many consumers found out in 2008. In extreme cases, you can even lose your entire upfront payment as residents of Mid-Coast Maine found out when their local heating oil delivery company filed for bankruptcy.

While we're just coming out of the current winter, the 2013 winter heating season is just around the corner! For many folks in colder climates, now's the time to start planning for your winter heating costs.

Predicting home heating oil prices for the upcoming winter heating season has become one of the most popular series of articles each year on my personal finance blog Trees Full of Money.

While I provide this service for entertainment purposes, I am proud to say that I have developed an exceptional track record over the last 5 years in recommending the most beneficial payment option provided by most major heating oil delivery companies in the northern regions of the United States.

In last year’s heating oil price prediction analysis, I recommended NOT to prebuy your heating oil contract unless you could lock in a price of $3.35-$3.65 per gallon of heating oil.  In my particular area, the cash or spot delivery price of heating oil was actually less than what the per gallon “pre-buy” price was!  

Last spring (2011), heating oil was hovering around $3.70-$3.80 yet my local heating oil delivery company wanted to charge me $3.89 per gallon for a pre-buy contract!  If I’m going to pre-buy my oil, AT THE MINIMUM, I expect a discount just for the simple fact that I’m paying the money upfront and there is no risk to the delivery company that I won’t pay as agreed (most home heating oil deliveries are made on credit where the homeowner in billed after the delivery is made.  Not to mention the oil company is earning interest on my money.

Before I provide this year’s recommendation on whether or not you should lock in today’s home heating oil prices, here is a quick review of some of the more common payment options offered by many local heating oil delivery companies.

The Spot Delivery or “Pay As You Go” Plan:

This plan means that you pay whatever the current cash price is for heating oil for the day it was delivered. This plan is excellent is you know for sure the price of oil will remain unchanged or even drop over the course of the heating season. Unfortunately, the price of oil has been so volatile over the last few years that making this prediction with any level of confidence is nearly impossible.

The “Budget” or Price Protection Plan:

This plan has been my favorite over the last few years. You sign a contract for the delivery company to deliver oil to your home for the entire heating season. The best part about most budget plans is they offer a “cap” or “price ceiling” on the price you pay per gallon, but unlike “pre-buying” contracts, if the price of a gallon of oil goes below the price per gallon you budget for you get the advantage of paying the lower price. As an added advantage, your payments are spread out evenly over a 10-12 month period so that you are not faced with gigantic heating bills during the coldest months of January and February.

The Pre-Buy or Pre-Pay Plan:

When you pre-buy or pre-pay your home heating oil, you pay for your home’s total estimated oil usage for the entire winter season upfront. The price you pay is usually competitive with the current spot delivery prices on the day you sign your contract. Pre-buy plans are excellent if you have the funds available, and expect the price of oil to rise over the winter season.

Should You Prebuy your home heating oil for the 2012-2013 winter heating season?

Although I’ve been fairly accurate in my predictions over the last few years, this year’s  prediction still comes with several cautions.

First, after observing what my father-in-law experienced two years ago when the oil delivery company he pre-paid filed for bankruptcy and he lost the balance in his account, I have come to appreciate the value of being able to “hang on to your money“. Before considering prepaying for my home heating oil, I would absolutely want to make sure that the company I was dealing with had a solid track record and was well grounded in the local community.

Second, like last year, the price of a gallon of oil is trading approximately in the middle of the range it has fluctuated in over the last few years which means that in a “perfect market” the price of oil has just about as good a chance of going up as it does of going down.

When oil prices are historically low (as they were in 2009), you can safely bet that prebuying your heating oil (at a slight discount under current cash prices) will offer you the best price protection. However, when prices are historically high (as they were in 2008 at over $4.50 per gallon) I tend to shy away from prebuying contracts as there is very little upside in price but plenty of room (historically) for the prices to go back down.

Like last year, with prices in the “middle” of the two extremes I have less confidence in making an accurate prediction of whether or not you should prebuy your heating oil for the 2012/2013 heating season. As of today (4/24/12), my local heating oil company has not released their pre-buy and budget plan pricing.

This chart show the fluctuations in the price of home heating over the last year. Note: Home heating oil prices are down 2% from where they were last year at this time.

I believe the price of a barrel of oil will decline back down to a more “natural” price range of $85-90 over the next 12 months from its current price of about $103 per barrel. I also believe this will help lower the price of home heating oil to between $3.45 to $3.75 per gallon here in Maine (based on my best educated guess using my homemade Excel algorithm using the factors that affect the price of oil including, American Petroleum Institute supply/demands statistics, perceived tensions in the Middle East and other oil producing countries, hurricane season intensity index forecasts, etc).  I also believe the EXTREMELY mild winter we just had will push away a lot of the “oil speculators” many believe artificially inflated the prices of liquid petroleum products.

If given the opportunity, I would consider pre-buying heating oil if I was offered a price of $3.55 per gallon or less, but if my local delivery company charges anything above that to “lock-in” heating oil prices, I’m going to pass and simply “pay as I go”.

An alternative method to protect yourself from rising heating oil prices.

If you’re interested a more “advanced” method of hedging against the rising cost of home heating oil prices, check out my article on how to hedge against rising gasoline prices, except instead of buying gasoline ETF (electronically traded funds), you protect yourself by buying home heating oil ETFs (I like ticker symbol UHN).

Also, if you’re interested in learning about how offshore oil and gas wells are drilled, check out my article on an introduction to drilling offshore oil and gas wells.

Related Information

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19 thoughts on “Home Heating Oil Price Predictions for the 2012/2013 Winter Heating Season”

  1. You don’t mention the program fee that Dead River, at least, charges to participate in their CAP program. For the 2011-2012 heating season, it was about $125 for a predicted purchase of 300 gallons. How does that compare to other companies?

  2. What generally is the cheapest time to fill up your tank. According to your chart, the beginning of October? I was thinking I could get more for my money in July or August?

  3. Hi Kelly,

    It is really tough to predict when the cheapest time is to fill up your heating oil tank. Some might argue that the cheapest time to buy heating oil is in the warm summer months when there isn’t much need for heating oil. Unfortunately, this is not always the case because of oil speculators and other “investors” who artificially buy up the excess heating oil that is not being used so they can then resell it during the warm winter months. Also, heating oil producers scale back the amount of oil they “make” during the warmer months to keep the supply in check with the demand. Because of the way investment markets work (and oil is definitely traded on the open markets like stocks, bonds, gold, etc.) know one really knows which way the price of home heating oil will move over a certain day month or year. This is why we are left to make an educated guess.

  4. Well, oil prices have nose dived over the past week. I’m thinking that now is the time to grab a contract for the season and lock in a price. Despite the recent drop OPEC reserves are low, so I don’t see prices going much lower than they are right now.

  5. Decided to prepay for 300 gallons (est. winter usage and minimum for Dead River, Maine prepay) at $3.779. Note that to participate in Dead River’s “CAP” plan, which this year caps the price at 3.999, one must pay a program fee of an extra 30 Cents per gallon. I decided I did not want to pay 30 cents per gallon, or over $100 just for the privilege of participating in CAP and decided to take my chances that oil will probably rise due to another inevitable Middle East crisis. Do other established Maine oil dealers offer a CAP plan at no or lower cost than Dead River?

  6. I just filled up my tanks @ $3.59 a gallon in PA. I will supplement with an EdenPure heater. Really cuts down on the heating oil cost.

  7. Fuel Oil:
    150 Gal — 3.18
    200 Gal — 3.13br /> 400 Gal — 3.10
    700 Gal — 3.07

    Shoot, I should have waited until this week!

  8. @Mike, Downeast Energy should have lower prices, give them a call (not sure if they deliver in your area). With that said, oil prices have fallen dramatically over the last two weeks and we may start seeing lower prices on home heating oil. $3.79/gal seems really high to me when oil prices are back in the $83-87/bbl range.

  9. Morning,

    About to make decision on propane purchase for upcoming winter. Any predictions on whether or not to ‘pre-buy’ with price lock or buy at market for season. Is there a pre-buy pricing range that is advisable? There are very competitive rates from Irving vs any local sources…
    Thanks!

  10. Eastern Oil in NH has a pre-buy for 3.33 a gallon..or 3.38 a gallon for 6 month pay plan. Do you think it will go lower?

  11. Like to read your predictions each year to get some perspective. Must make a lock-in decision by the end of this month (June). Our oil company is offering a lock-in of $3.59.9 for a 12-month budget program. I read with interest that you mention your favorite as being the “Budget” or “Price Protection Plan.” Oil companies around here (I live in Pennsylvania) used to offer budget plans that set a cap plus you got to pay the lower rate if the price went down–however I can’t find any oil companies anymore that offer you a budget like that. Now you must pay the cap/lock-in the entire budget length and if you want to pay the lower rate if prices go down, you have to buy insurance up-front, currently at 25 cents x the estimated amount of oil you’ll use for the year–i.e. if you use 1,000 gallons per year, your insurance would cost you $250. In any case–wonder what you think of locking in at $359.9 for the budget year. I go though this decision-making process every year! *sigh*

  12. Hi,
    My well-established local heating oil supplier is offering a pre-pay price of $3.649, or a discount plan of $0.15 off deliveries, but with no cap. Would you still go with the pay as you go discount in the absence of a cap?
    Thanks

  13. Just got 300 gallons of #2 at 3.30.9a Gal in Central Virginia , Also got 200 gall of Propane @ 2.25.9 a gal. Think we are going to have another MILD winter considering what we have seen this Summer for tempartures. Hopefully we won’t use any more fuel then that , if so I am going to hook up the wood heater to all the rgisters on the first floor and start burning wood. The only way these prices come down is when you have an “alternative” and stop using them. The price of Home heating oil and propane is UNREGULATED in my state. They get to charge whatever the market will bear ; my bearing days are about over had enough of speculators and the current system.. going to start cutting an hauling wood and get off the couch this winter as ell.

  14. Check out Frederick brothers oil in Scarborough they have been family owned and operated since 1946 ( buy local) they offer a 10-12 month budget where you save 5 cents a gal off the daily cash price or a two pay plan that you save 10 cents a gal off the cash price.

  15. It is not a lock in just a two pay budget when they deliver you pay the daily cash price minus ten cents a gal. Basically say you use 1000 gal a year we figure the budget at .50 cents higher a gal than today’s price that way if or when the price goes up the extra $$ on acct is there and if the price stays down or like last year it was mild you can take all the credit back, use it for next year budget, or annual service we don’t keep any of the money left over. Pre buys are risky ! One year it works the next it does not!

  16. I’ve been receiving a few emails over the last week asking if I’m still sticking with my decision not to pre-buy home heating oil:

    Yes, I’m still sticking by my original decision not to pre-buy unless I can get locked in under $3.55. I always ask myself would I be comfortable locking in at current prices… If I were to locking in at $3.79 (which is what many of you are being quoted right now), I would then be worried that prices will come back down and I will have over paid (as happened in 2008-2009 when heating oil prices fell from $4.50+ to $2.50).

    In my opinion heating oil dropping to $2.79 a gallon is a much more realistic idea than heating oil going to $4.79 per gallon over the next few months.

    On the other hand, if I simply couldn’t afford $4.79 per gallon than I really would have no choice but to lock into $3.79 per gallon (or whatever I could get). This is one of the benefits of having an “emergency fund”.

    Hope this helps and good luck with whatever you decide!

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