10.3.09
After noticing this article –
Bloomberg – Cold Winter Due to Weak El Nino
-on Bloomberg, I began putting more thought into the debate regarding whether or not we should lock in oil prices for the winter in New England.
Here are the thoughts to consider:
Macro considerations
1. If the world economy re-weakens from the slight rebound we’ve seen in economic indicators since earlier this year, oil prices could continue to fall – this would mean don’t lock in
2. if the economy continues to grow – slowly or strongly – oil prices could continue to rise making a case for locking in prices now.
Regional Considerations
1. If the winter is unusually cold, and oil prices rise of stay flat, heating oil prices could still rise due to delivery costs to the Northeast and simple supply/demand issues. This would make a case for locking in.
2. If oil prices fall and the winter is not so harsh, then home heating oil prices could stay low avoiding the need to lock in.
Other considerations
1. If oil prices start to rise, there could be a rush to secure supplies causing a 3-6 month strong run up in prices due to market forces resulting from the fear of scarcity (and not so much scarcity itself in the short term).This would make a case to avoid what we had early in 2008.
2. If oil prices plummet due to investors, nations, etc not wanting to hold a falling asset, then locking in may not make sense.
Conclusion?
I don’t have one. But if you’re ok with budgeting the current rate, then perhaps locking in will benefit you. You will get the certainty that comes with having a fixed price. If, however, you will be supremely angry with yourself if prices fall after you will have locked in prices, then consider not doing it. Either way, pay attention to the factors above because for a New Englander, heating oil price planning is a large part of their annual budget with heating oil costing $2,000-4,000/year for many homes.
If you have any thoughts, share them please. Thank you and look forward to hearing from you.
Chris Grande
