Should I pre buy my oil for the upcoming year?

[slappy]

In my area (northeast, north of Boston), there is doom and gloom reporting about how oil prices are going to be $6-$9 per gallon this winter. Oil prebuy is currently available at $4.47 per gallon. For reference, we used about 500 gallons last year. We heat with wood quite a bit, but weren't prepared last year, so we ran out of seasoned wood by Feb. This year we are prepared with enough wood for the season. I see everyone in Facebook groups panicking about the cost of oil and electricity, etc. The last time we pre bought oil was in 2018, and the prices ended up coming down over the course of the year. For us, it wasn't a huge deal, but I have friends that sit on the boards of schools and churches and they "lost" thousands of dollars by pre buying at a higher price. I'm just not sure if I should take the plunge this year. What do other mustachians do about heating oil?

[Sibley]

How flexible are you with your heating source? If prices are $9 a gallon and you run out, can you fully heat with wood?

I am risk adverse when it comes to being cold. I would seriously consider prebuying. Primarily because a lot of the problem is being caused by Russia, and who knows what's going to happen there, but I don't particularly trust Putin to make decisions that are in my best interest.

[slappy]

How flexible are you with your heating source? If prices are $9 a gallon and you run out, can you fully heat with wood?

I am risk adverse when it comes to being cold. I would seriously consider prebuying. Primarily because a lot of the problem is being caused by Russia, and who knows what's going to happen there, but I don't particularly trust Putin to make decisions that are in my best interest.

I've been thinking about this a lot actually. I guess not, because of the overnight period, although I would be willing to drop the temp to 60 at night (we set it to 62). However, then we would have to get up right away and start a fire in the morning. Currently we get up, work out, get the kids off to school, etc before we start a fire. Changing that routine with three little kids would be a bit of effort. I was thinking maybe pre buy 350 or 400 gallons instead of the 500, and then also make more effort to use the wood vs the oil.

[uniwelder]

I was just listening to NPR the other day and heating oil was being discussed. The prediction was a likelihood of shortages in the winter due to low current reserves and limited refineries operating.  I’ll try finding it and attach a link. I would definitely buy now (or at least whatever gets you free delivery, perhaps 200-250 gallons) as I can’t imagine prices coming down for the winter.

[GuitarStv]

FWIW, you should be able to do wood if necessary.  If temperatures aren't too cold you just get the house cooking before bed and light the fire again in the chilly morning.  When it gets down below -40 you need a delegate to wake up in the night and pop a few more logs on the fire.  (That delegate was me in our wood stove heated house in Northern Ontario.)  :P

[nereo]

Why not install a ductless mini-split and spend some time improving your air sealing? That is going to save you far, far more than buying heating fuel “at the right time.”

[uniwelder]

Why not install a ductless mini-split and spend some time improving your air sealing? That is going to save you far, far more than buying heating fuel “at the right time.”

Good point.

[ChpBstrd]

That's a tough call.

Reasons Oil Could Go Higher
>Worsening of the Ukraine war. E.g. another assault from Belarus, attacks on peripheral countries, sabotage of infrastructure, a total war declaration by Russia, etc.
>China emerges from zero-COVID and their economy starts heating up
>Years of insufficient E&P investment by oil companies is catching up with demand growth
>Typical pre-recession burn-up in prices
>European hoarding gets desperate

Reasons Oil Could Go Lower
>Fossil fuels usually tank as a recession starts and a lot of demand dries up.
>A Chinese + European recession
>OPEC+ reaches a deal to sell more oil, or members oversell their quotas

I would be tempted to buy now, but you could hedge either decision. If you wait, the risk is that oil goes from $4.47 to let's say $8 by the time you buy. That's going from $2,235 to $4,000, an increase of $1,765 or 79% in that scenario. If you wanted to wait, you could hold $2,235 worth of USO shares until your oil purchase date. If the price of oil goes up between now and then, the rise in USO will very-roughly compensate you for the higher price you must pay, before taxes. Likewise, if you buy now but want to avoid regrets in case the price of oil drops later, you could buy put options on USO. The details of exactly which options and how many can be tough to work out, but probably if you controlled $3k worth of shares that would be roughly sufficient.

A simpler choice might be to purchase half your oil now and half later, obtaining the average price between those time periods. However I'm sure there are delivery charges to consider.

Obviously, the low-hanging fruit here is to add insulation to your house, caulk up any gaps, shrink-wrap plastic over the windows or build storm windows, refresh the seals on your doors, etc.

Regarding the mini-split idea (or other electric heat sources) maybe come up with a cost-per-BTU estimate to heat your house in terms of kWh or gallons of oil. There will be a breakeven point where electricity and a heat pump are cheaper than the oil furnace. Then choose your method accordingly.

[slappy]

With regards to the possibility of heating with electricity vs oil, our electric rates have also recently increased substantially. 

It sounds like the best thing to do is some version of the average idea, but maybe prebuy 70% of what I expect to need. I definitely need to look into improving my air sealing!

[Captain Pierogi]

Our oil company, who has always offered pre-buy and lock-in options, has suspended both options for this year.  I'm wondering if this is just them or a trend.  We're in New England.

[slappy]

Our oil company, who has always offered pre-buy and lock-in options, has suspended both options for this year.  I'm wondering if this is just them or a trend.  We're in New England.

Interesting! I'm in NH and haven't heard of this happening yet.

[reeshau]

>European hoarding gets desperate

It's not just hoarding; for some applications, Europe could switch from (Russian) natural gas to oil.  That substitute demand makes sense with the limits of gas they can source elsewhere, and if they otherwise have to ration it.  But it will be additional demand--not just peak or trough, but a new demand source.

I'd buy now, just for the certainty.  You can sweat it out, and regret or revel in the outcome.  But I would simply save myself the emotional workload.  Looking back at this year, it's not a bad time to buy.

[nereo]

With regards to the possibility of heating with electricity vs oil, our electric rates have also recently increased substantially. 

With heat pumps it’s not an either/or, and for the majority of the heating season it’s not even remotely a close call. The efficiency of heat pumps is so much greater when temperatures when the temperature is above 19° F. When it drops into the single digits you can use our supplement with heating oil. During the “shoulder seasons” (when you still need heat)  the efficiency can be 3x.

When we installed heat pumps in our previous home (in maine) but kept our fuel oil registers our heating fuel use went down at 70%, and total heating costs (fuel plus electricity) dropped by about 40%. You are in a more favorable climate with milder temperatures.

[tarheeldan]

This looks to me like a good year for price protection (a fixed or capped price program)

US distillate inventories heading into the heating season are very low due to strong exports amid Western sanctions against Russia and gas-to-oil switching for power generation amid sky-high natural gas prices, despite strong production and relatively weak US implied demand

Weekly data: https://www.eia.gov/petroleum/supply/weekly/
Monthly report (pages 9-10 deal with distillates): https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf

These low inventory levels can lead to big price spikes, particularly in the Jan-Mar period, if we have any kind of supply or demand shocks. East Coast stocks specifically are 33.7% lower than last year and 43.3% below their five-year average, as of the August 26 reporting week

The NYMEX ULSD (HO) futures forward curve remains backwardated, providing economic disincentives for storage operations

[slappy]

With regards to the possibility of heating with electricity vs oil, our electric rates have also recently increased substantially. 

With heat pumps it’s not an either/or, and for the majority of the heating season it’s not even remotely a close call. The efficiency of heat pumps is so much greater when temperatures when the temperature is above 19° F. When it drops into the single digits you can use our supplement with heating oil. During the “shoulder seasons” (when you still need heat)  the efficiency can be 3x.

When we installed heat pumps in our previous home (in maine) but kept our fuel oil registers our heating fuel use went down at 70%, and total heating costs (fuel plus electricity) dropped by about 40%. You are in a more favorable climate with milder temperatures.

My neighbors just did this. I will have to ask how much it was.

[Smokystache]

If this is the same type of oil that you're talking about, then it looks like it would be pretty exceptional for it to drop below $3/gallon. So let's use that. It drops to $3/gallon and you overpaid by about $1.50 a gallon x 500 gallons = overpaid by $750 (that's likely close to a best case scenario). Wait to buy and worst case scenario happens of $9/gallon: $4.50 more than now x 500 = $2250 more than you can get it now.

There are good arguments about mini-splits, using more firewood etc. -- but as far as simply buying now or later, this isn't a close call for me. When it comes to heating my own residence during winter (and being responsible for everyone who lives there -- it might be different if I'm the only one who suffers my decision), I'm buying right now. I'll sleep a whole lot better. And if you decide to use more wood and only need 300 gallons, then your numbers are even easier because you may overpay by $450 and that's not worth losing sleep over.  My $.02.

[jrhampt]

Why not install a ductless mini-split and spend some time improving your air sealing? That is going to save you far, far more than buying heating fuel “at the right time.”

Good point.

I was also going to suggest this, if you can find a contractor who can do it before winter.  It's what we did last year, no regrets.

[nereo]

If this is the same type of oil that you're talking about, then it looks like it would be pretty exceptional for it to drop below $3/gallon.

The graph above is propane.  OP is talking about heating oil, sometimes called #2 fuel oil. As a fractional distillate, it's very similar to diesel (and in fact you can run diesel through most boilers designed for fuel oil with no ill effects, though you will pay fuel tax. Heating fuel is dyed red and legally cannot be used in diesel vehicles on surface streets... though that works too). At normal atmospheric pressure and room temp it's a liquid, not a gas like propane.

In Mass, where the OP appears to be located, the median retail price is currently $4.69/gal.  Last year it was $2.85/gal
See here: https://www.mass.gov/info-details/massachusetts-home-heating-fuels-prices#retail-heating-oil-prices-

[AccidentialMustache]

If your oil burning equipment breaks, would you repair it, replace it with another oil burner, or change fuel sources? What do you think is left in life expectancy of your equipment?

[slappy]

If your oil burning equipment breaks, would you repair it, replace it with another oil burner, or change fuel sources? What do you think is left in life expectancy of your equipment?

All of our equipment is pretty new at this point.

[Smokystache]

...

If this is the same type of oil that you're talking about, then it looks like it would be pretty exceptional for it to drop below $3/gallon.

The graph above is propane.  ...

Thanks for catching that. My original link didn't work and then I got mixed up with my search. Is it fair to say that heating oil won't go below what is was a year ago (pre-Russia invasion)?

[nereo]

...

If this is the same type of oil that you're talking about, then it looks like it would be pretty exceptional for it to drop below $3/gallon.

The graph above is propane.  ...

Thanks for catching that. My original link didn't work and then I got mixed up with my search. Is it fair to say that heating oil won't go below what is was a year ago (pre-Russia invasion)?

No idea.  As I said, it’s effectively diesel.  If the world (and particularly China) tips into recession in the next six months, fuel prices are likely to take a nose-dive.  Or so the prevailing economy theory suggests.

[slappy]

Quick update: I don't remember what the high price of oil was last year, but I don't remember it going about $6 and it did come down toward the spring season.

This year my oil company is offering a prebuy at $3.50 a gallon, which we will probably participate in. It seems worth it for the peace of mind. This company also gives you a credit for unused gallons, which our previous company did not. Our previous company actually charged you extra if you didn't use all of your pre bought gallons.