July 27, 2023
By Ken Foster
Did you ever think that you could buy your heating oil (bio-fuel today) like the Option Traders in New York? Well, you can. It’s simple, Hall Oil Gas and Electric buys futures* (options) for the winter in 10,000 gallon increments to be spread over a heat curve (each month has an allocation of fuel based on the anticipated cold weather). We break these contracts into smaller increments and offer these contracts to you, called an (EARLY BUY). The number of gallons you can purchase starts as low as 300 gallons. We recommend not buying more oil than you historically use.
*I will address when to buy futures further into this blog. Continue reading from the expert from Hall Oil Gas and Electric to learn more.
Everything You Need to Know About Becoming an Early Buy Customer for Home Heating Oil on Cape Cod
How Do I Become an Early Buy Customer?
Contact Hall Oil Gas and Electric and ask what the Early Buy price is, and if that sounds good to you, we will send you a contract based on your historic fuel usage, with the Early Buy price and the necessary amount to pay. That is it, we do the rest.
What are the Other Benefits of Pre-Paying for my Heating Oil?
Yes, Hall Oil, Gas and Electric pays 4.08% simple interest per annum on a monthly basis calculated on your end of month credit balance. This is credited as a discount and applied to your account. The amount of discount earned also reduces the cost of your fuel.
How Do I Know the Early Buy Price is Going to be the Best Oil Price for My Cape Cod Home?
If you are an Early Buy customer, this contract includes Price Protection. If Hall Oil Gas and Electric is posting a lower price than your contract price on the day of your delivery you will receive this lower price. The beauty of this program is the contract price is the most you will pay, and the Price Protection guarantees a lower price if we are posting a lower price for that day.
How Does Hall Oil Gas and Electric Know When to Buy Futures (Options)?
No one can tell you the best time to buy Futures as no one can tell you the best time to buy stocks. It is like throwing darts and the more experience you have the closer you might get to the bullseye.
We started buying 42,000 gallon contracts nearly 30 years ago referred to as the wet barrel, of which we had to take delivery of the physical fuel. A few years ago, the contracts that we could purchase changed from 42,000 gallons to 10,000 gallons and we could do this with a broker as an option. An option is a monetary transaction and not a wet barrel. If the market price of fuel drops below the price we had when we contracted the option, we let the option expire and purchase fuel at the local market price. If the market price of fuel is higher than the option price we contracted for, then we execute the option and use the proceeds (payment) to cover the shortfall, and thus we can give your contracted price. This is a win-win for both you and Hall Oil.
Now that we have had experience doing this, can we always purchase an option at the lowest oil price?
The answer is no. We watch international, domestic, political, weather projections, interest rates, market research, and other significant events that affect the markets. When we think a low has been reached we will contact our broker to purchase the option. We often buy several option contracts over a period of time and average the value and offer it to you.
One recent event that reduced the future option value was when our government could not reach an agreement on the budget and we were not going to be able to pay our bills. This uncertainty created the opportunity to buy options. On the contrary when Russia invaded Ukraine the option market went ballistic, however that was in February 2022, and we had already purchased our contracts prior to that event for that year. We just keep our ear to the ground, and after doing this for 25 years sometimes we can guess right.
Related Post: Is Now the Best Time to Buy Heating Oil?
Is There a Downside to the Early Buy for Heating Oil?
The only downside to The Early Buy is waiting too long before you act.
The closer we get to Fall and Winter the less likely we are going to see opportunities for lower prices like we see in the Spring and Early Summer. Often times the further out you speculate there is not as much interest in locking in futures, so brokers are more motivated and option prices can be lower.
What If I buy More Oil than I Can Use?
We guarantee the price for 18 months, and if you still have oil you have not used the amount you paid will remain as a credit on your account, but we will not guarantee your price on the remaining gallons. This is why we recommend not buying more than you used last heating season.
What if I Stop using Oil at My House during the Contract?
Hall Oil Gas and Electric will buy back the undelivered oil under contract at the lower of the current wholesale price at the rack here in South Dennis or the amount you purchased the contract at. The amount returned to the customer will not exceed the credit balance on the account at the time of this transaction. Our recommendation is not to enter into a contract if you are planning to drain, sell or otherwise shut off the heating system during the heating season.
Related Post: What You Need to Know About Natural Gas Conversions
Is There Anything that can Affect this Early Buy Program?
Yes, Force Majeure, and we all should hope we never see this. If you want the long form it would be available on Google or other Search Engines.
Force Majeure is a French term that literally means “greater force.” It is related to the concept of an act of God, an event for which no party can be held accountable, such as a hurricane or a tornado. However, Force Majeure also encompasses human actions, such as armed conflict.
For instance, if the Gulf of Mexico oil platforms were destroyed by a hurricane a Force Majeure may be put in place which may or may not affect these Early Buy Contracts.
In Conclusion About Early Buy Heating Oil Programs
If we did not believe in these programs, we wouldn’t buy them and offer them to our Cape Cod customers. As we stated in the beginning, we became involved in these programs some 35 years ago and have offered it every year since 1991. The programs have evolved and are much more targeted to the individual then when they were first offered.
In closing this is just a win-win for all parties. Call us at 508-398-3831 and ask for Lisa to get started. Or, visit us at halloilgasandelectric.com to contact us for more information. With over 105 years of serving the people of Cape Cod, we are experienced and ready to help you get ready for another winter. We hope to hear from you soon and have the opportunity to earn your business.