High LI home heating oil prices making contract pricing uncertain

Home heating oil prices averaged $6.46 a gallon on Long Island in mid-May and show only slight signs of abating this month, throwing the market for heating-oil contracts for the coming winter season into uncertainty, observers say.

The Long Island average price was a 100% jump from the average $3.22 a gallon a year ago, and nearly a dollar higher than the average price of $5.49 at the end of April, according to figures from the New York State Energy Research and Development Authority. Heating oil prices across the state averaged $6.30 a gallon in the same May 16 survey.

As June prices continue to flirt with last month’s record levels, some companies are delaying new contracts or strongly urging customers not to lock in prices without protections, the observers say.

A dearth of new contracts also may be based in sticker shock, as June prices continue to flirt was last month's record levels, said Michael O’Connor, director of the nonprofit Fuel Buyers Group at the New York Public Interest Research Group.

“It might be that both retailers and customers really have a level of disbelief at how high prices are,” said O'Connor. “They’re thinking, ‘There’s no way it can get this high.’ That’s what we thought a few months ago, when we were shocked to see prices over $4. And now they’ve gone over $6.”

Where available, including through its own network of dealers, O'Connor's group is advising customers to consider capped programs, which have a ceiling that's set around the current rate but can also decline if prices drop.

“The best thing consumers can do is get a capped price,” O’Connor said. “That ceiling is going to be high, but at least it’s something they can budget for.” He advised customers to make sure they understand how heating-oil retailers’ formula for the cap works before signing up.

Debora Toth, a customer of Patchogue-based Swezey Fuel Co., said she recently called the company to ask about a new contract once her existing fixed contract expires at the end of July. The Farmingdale resident said she was told the company isn’t offering new contracts just yet “because prices are too volatile.” Toth added, “I’m not sure I’d want to lock in at $6 anyway.”

Gary Zanazzi, co-owner of Swezey, said the company will allow customers to lock in if they desire, but there’s “big risk to locking in right now” and he doesn’t recommend it.

“We’re getting calls now and telling customers it’s risky to lock in, but if you want to lock in, you can,” he said. Swezey is considering a capped-price program for the coming heating season, but it will carry costs for customers, along with the potential lost benefit if prices drop. Capped fuel programs might cost upward of 50 cents a gallon more, for instance, he said, though his program is not yet established.

Zanazzi said some customers with last winter’s locked-in rates that haven’t yet expired are requesting that their tanks be topped off for the summer, even though they aren’t due for a delivery until the fall. Swezey is accommodating some of the requests in cases in which customers have half a tank or less, he said, but the company takes a loss on such transactions.

O’Connor of NYPIRG said Long Island benefits from having a large number of fuel-oil retailers, even though “there’s been a lot of consolidation in the market,” since the last volatile period in 2008.

The Star Group, a Connecticut-based fossil-fuel conglomerate that describes itself as the nation's largest retail distributor of home heating oil, has acquired numerous Long Island heating-oil retailers, including Petro Home Services of Yaphank, Meenan Oil of Syosset, Schenck Fuels of East Hampton, Tuthill & Young of Port Jefferson, and Perillo Bros. in Farmingdale. Romanelli Energy, a Star-owned heating oil retailer in Lindenhurst, referred calls to Star Group, which did not return messages.

“They’ve been doing a lot of acquiring,” O’Connor said of Star, noting the company tends to keep original company names and many of the employees intact. As for Star's impact on local pricing, he said there isn't a lot of profit margin for the local retail suppliers. 

"Whether prices are $3 or $6 a gallon, most of that money is going far, far upstream from someone delivering to your door," O'Connor said. "Most of what you pay is not going to that local retailer."

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.