Heating Oil Price Predictions 2011: Should You Pre-Buy?

Click here for my 2018 home heating oil price predictions and buying advice.

One of the most popular features on Trees Full of Money is my annual price predictions on home heating oil. Each year around this time, I’ll cover the various options homeowners have when it comes to paying for their home heating oil for the upcoming heating season.

I must warn you that I’m not an “expert” in oil trading and I’m certainly not a psychic, but over the last 4 years I’ve been very successful with my predictions on whether you should pre-pay your home heating oil, set up a budget plan for your home heating oil, or pay the cash price for each delivery.

To bring you up to speed, I’ll first cover the three basic payment plan options my local oil delivery company offers:

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 Pre-Buy Your Home Heating Oil for the 2010-2011 Heating Season?

Based on several delivery quotes I’ve received from Rhode Island, Maine, and Massachusetts, the average price for pre-buying your heating oil this year is $2.65 a gallon (as of 4/7/10).

If you opt for the price protection plan (or the “budget” plan as it is often called) you can expect to pay between 30 to 45 cents more per gallon (or $3.10 per gallon of heating oil).  

I do expect heating oil prices to rise into 2011 and feel that $2.65 per gallon is an good price to pre-buy your oil at for the 2010-2011 heating season.  Remember, if you opt for the price protection option at $3.10 per gallon, heating oil would have to fall below $2.20before you saw any real benefit over pre-buying and locking in at $2.65 per gallon.

If the World Stock Markets are any indication, it appears the economy is on a road to recovery and its very unlikely that heating oil prices will dip below $2.20 in 2011.

Alternatively, I would be very nervous electing the spot price option too!  My instinct tells me that heating oil prices will rise well over $2.85 as we approach 2011 and I would hate to have missed out on the opportunity to pre-buy at $2.65.

Remember, this is just my opinion.  I am going to pre-buy my home heating oil (just like I did last year) as soon as my local oil delivery company finalizes their prices for 2010-2011.

Update: Click here for 2012 Heating Oil Pricing Recommendations.

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