How to Buy Home Heating Oil

During the latter part of summer, home heating oil companies routinely contact their prior year’s customers to make arrangements for the upcoming heating season. Oil is often cheaper in the summer, when demand is usually low; as a result, most consumers will “top off” their oil tank during the summer.

While some variations in oil contracts and budgeting occur, most consumers opt for one of the following types of plans:

1. Pre-pay for a set number of gallons of oil, with the oil being delivered through the course of the heating season as needed. The downside is that the consumer pays the entire cost upfront. 2. Commit to purchasing a set number of gallons of oil at a capped price as needed during the season; typically, this requires paying a Cap fee (also referred to as a plan fee or insurance fee). The fee typically is between $200 – $400 and varies from company to company; however, the consumer can spread the cost out as oil is purchased. In this scenario, the consumer knows how much a gallon will cost far in advance. The downside is that if oil prices drop, the consumer is locked into paying for the oil at the pre-agreed price. 3. For an extra fee, some oil heating companies offer “downward price protection”. For a relatively nominal fee, often ten to twenty cents a gallon, the oil company will allow consumers to enter into a capped arrangement with downward price protection so that consumers pay the lowest available price. This is a hedge-your-bet price protection scenario. 4. Some consumers prefer to pay for oil as they need it, in a pay-as-you-go market price arrangement. Others prefer to prepay for the amount of gallons of oil that they are likely to use during the heating season. The risk to consumers is that if the price of oil suddenly skyrockets, the price of oil can be beyond the consumer’s ability to pay. Worse, should there be a problem with supply, consumers who have not entered into an oil contract are the last ones to get oil in a shortage, assuming any oil is available. 5. Some consumers join various associations, cooperatives or point-plans. An example of a point-plan is found through Neighbor Oil, where consumers can earn points to defray the cost of purchasing oil. Consumers considering an association or co-op must consider the stability of the organization carefully as well as factor in any membership fees to determine if an association or cooperative would be advantageous. Through personal experience, I recently paid just $1.85/gallon for oil through Neighbor Oil – while my regular oil company was offering it at $3.49/gallon.

When considering pre-paying for oil or committing to purchase some number of gallons, be sure to check your records for how much oil you used the prior year – that should be a good guideline of how many gallons you may need in the upcoming winter. If you used 800 gallons last winter, plan ahead for that many gallons this winter and make adjustments based on any changes in your lifestyle or home.


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