Protect your fuel price this heating season

You have several options when it comes to purchasing your fuel this winter, and we’re here to simplify the four different plans for you:


As we’ve learned with the recent economy, we can never be too careful of chasing the “deal” of the moment. Prices will go up and down, and discounts come and go.

But we at Hi-Ho Petroleum have some terrific ways to help you save money on your fuel bills while increasing your home comfort. If you let us, we can be your energy savings partner.

When it’s cold, you’re going to want someone to help you stay warm, and to get to your house fast if your heater breaks down, and give you advice you can trust. Many fuel dealers can’t deliver on these basic principles of good service. Some dealers can’t even offer service!

But you can be sure we’ll be there for you, and do things the “right” way. Read below to find the right price protection option for you.

 

1) Fixed

With the fixed price option, you pay only your guaranteed rate. You are protected if the market rises, but, at the same time, if prices drop we won’t be able to lower your rate. Your price won’t budge no matter what the market does.

2) Price Cap

The price cap program is designed so that if oil prices skyrocket, your price will never go above the cap. But if prices fall for a sustained period, so will yours. If our daily rate is lower than the cap on the day of your delivery, you pay the lower amount. However, our suppliers charge us a hefty premium for this type of downside price protection. So if you choose the price cap option, an upfront 15-cent per gallon fee will be added to your bill. The following graph illustrates why:

Heating oil price cap graph

These graphs represent typical two-week periods in 1995 and in 2009. As you can see, the price of oil is much more volatile today, on a day-to-day basis, 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.

3) Pre-Buy

When you pre-purchase your fuel, you lock in a pre-season 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. There are downsides, however. If you order too little oil, you must pay market prices for additional oil for the rest of the season. And if oil prices fall during the heating season, you’re stuck with the price you paid at the start of the season.

4) Daily Price

This is perhaps our most flexible program because it requires not contract or fees. Your price simply floats up and down with the market, allowing you to take full advantage of any drop in price (without insurance fees associated with the price cap). However, if prices rise, you price will rise as well. If you prefer to start the season with this option but decide to add price protection further in season, we will accommodate your request.


Some Common Questions:

Q: What’s the difference between a guaranteed price program and price cap protection?
A: A guaranteed price program means that your price is fixed at one set price throughout the heating season. No matter how high world oil prices go, your price can’t skyrocket. The fee for the guaranteed price program is $25. Similarly, with a price cap, you are still protected against price surges. Your rate cannot go higher than the “ceiling.” But the difference is that with a cap, if the market price falls, your price drops too. Any time our daily rate is lower than the cap ceiling on the day of your delivery, you pay the lower amount.

Our fuel suppliers charge us a hefty premium for offering this flexible protection. While we absorb what we can, we must pass some along in the form of a fee to those customers who choose to have this type of protection.

Q: Why is there a different program every year?
A: The old rules about pricing trends no longer apply. We used to be able to count on prices rising in the fall when demand went up and prices dropping in the spring when demand went down. Today, things are more complicated because hyper-volatility in the energy markets has resulted in price instability. Because of this, we must be innovative and flexible with our price protection programs, resulting in different price protection options being offered on a regular basis. By periodically adjusting our price protection programs, we can provide our customers with the best options for saving money. Keep in mind that when you sign up for price protection, it remains valid for one heating season only. After that, you need to be renewed for the following season for a new pricing program.

Q: Is price cap protection always the best option?
A: Not necessarily. We make the price cap program available to our customers, but by no means do we think that everyone should be on it and we do not make money on the fee. We have no way of knowing whether this “insurance” will pay off. So, if you choose to pay our market rate instead of choosing our price cap protection, and the price of oil drops during the heating season, you would save money by buying at the daily rate by not having to pay a price cap fee, which we are forced to charge due to the ever-increasing volatility in the oil market. On the other hand, if you pay the market rate and the price of oil rises, you would pay the higher price because you don’t have a cap. Whatever you decide, know that our commitment is to take the best care of your family we possibly can—especially in these uncertain times.

Q: How do you determine what the price cap will be?
A: Planning for price protection the right way is a year-round effort. We analyze pricing trends, study the commodities market daily and do a lot of research so we can decide when the time is right to make our bulk fuel purchases. Only in this way can we structure a reliable workable program, one you can count on for protection from unpredictable spikes in the price of fuel. It takes time and money to structure a price cap program correctly and not all heating fuel dealers have the resources to do it, especially in the current market. The price itself of the cap depends on the wholesale price we pay, plus an allowance to cover our costs, such as insurance, vehicle maintenance and employee wages.

Q: Why do I have to pay a fee for your price cap?
A: As you might expect, our suppliers charge us a premium for offering the “insurance” that allows us to keep your price from skyrocketing while at the same time gives us the flexibility of lowering your price should market prices fall. Unfortunately, that cost has increased eightfold in the past few years as fuel prices have become more volatile.

Q: I’ve seen other companies that aren’t charging for a cap. Why is that?
A: That might be. But we know that many companies don’t actually buy the options they need to really lower their rate. They say they’ll drop it, but it’s really fixed. Some of them don’t even really buy the oil to protect you from price increases. They just hope for the best. And that’s why over the past few years, there have been companies that defaulted on their price protection programs.
We have never defaulted on our programs. We do it the right way so you can have the peace of mind you wanted in the first place.

What is downside protection?
A: Since a price cap program protects you from falling prices, we have to purchase options that allow us to “sell back” fuel to the supplier at the higher rate, and then buy more fuel at the new, lower rate. This downside protection allows us to lower our prices when market rates fall.

Q: Why is it so expensive to provide a price cap now?
A: In the past, there was much less volatility in the oil markets and the cost of a price cap program was quite low. That’s why we offered it to our customers at no cost. Now that the energy markets have become so unpredictable and the likelihood of falling prices has become so much greater, the cost of price cap “insurance” has become much greater. It’s similar to flood insurance. If you live in a flood-prone area, your insurance premiums are a lot more than if you lived on high ground far from rivers and streams. Right now, we live in a time with a very volatile energy market.

Q: How high would prices have to go to make the price cap pay off for me?
A: Here’s one way to determine the value of a price cap to you. The simple answer is, the price has to drop an average of 55¢ on all of your deliveries for it to pay off.

Q: When do I need to sign up for a price cap?
A: Unlike other companies, we at Hi Ho Petroleum will price protection your fuel at any time during this heating season. If you prefer to start off the season with the daily rate and switch to a guaranteed or cap price program later on, we will accommodate you.

Q: If I call you this winter, will your customer service representative know the price for the day and tell me where prices are going?
A: If you want to know the price for that day, please feel free to call our office. We cannot make any predictions on where prices are going, however. The daily price could change from day to day, depending on the weather, inventory and a host of other factors. No one can predict the oil market. It would be like calling us up and asking for stock market tips.

Q: How do you figure my SmartPay payments?
A: To calculate your monthly SmartPay payments, we use an average from your fuel delivery history to estimate the number of gallons you will use during the next heating season. We multiply the number of gallons by an estimated price per gallon. This amount is then spread out into 11 equal monthly payments.

Q. Why do you have an Early Termination Fee? You never used to have that.
A: We’re forced to start doing this because of our lawyers. To give you price protection, we’re going to have to buy the oil ahead of time and we’re on the hook for that. So we need you to honor your commitment. But if you don’t like that, you can choose our regular daily rate.

Q. I’ve seen prices that are lower than yours. Why is that?
A: There are always going to be companies that charge more or less than we do (We tend to be right in the middle.). It’s important to compare apples to apples. First, are they a full service dealer, or just one that makes deliveries, leaving you to fend for yourself if your equipment breaks down or they can’t secure product? Second, are they telling you their regular price, or a special come-on rate? This is a game many oil companies around here play—especially the huge ones. You think you are going to lower your bills permanently, only to discover that your price is jacked up really high as soon as the offer ends.

In the meantime, when it’s cold and the company is busy, who are they likely to serve first? Customers who are paying the regular rate, or a new one who’s paying a lot less? And how flexible do you think they’d be if you needed more time to pay your bills because of a temporary problem?

Often, these same companies find other ways to skimp that can cost you big time—like not doing the annual tune-up included in their service plan; not offering true night and weekend service; and not keeping enough service technicians to get to you quickly if you have no heat.

We guarantee our daily price is lower than the average regular rate of full service dealers in our area. And customers tell us that our superior service saves them money, reduces their aggravation and gives them real peace of mind.

Q: Why is there a fee for your guaranteed price program?
Due to the volatility of the market, our suppliers charge a premium for the fuel we secure on your behalf. Therefore we must pass along a one time fee of $25 for the guaranteed pricing program.