There’s no one answer that fits everyone to this question. Locking in a price means signing a contract with a fuel oil dealer.
Heating oil contracts are agreements between a heating oil supplier and a customer in which the customer agrees to purchase a fixed quantity of heating oil at a set price. These contracts can provide stability for the customer and the supplier, and they can be used to budget for winter heating costs. Heating oil cap contracts can also help protect the customer from price fluctuations in the market. However, locking in your price has its pros and cons. On the one hand, it can protect you from severe price hikes. On the other hand, if the market drops, you might end up paying more than you would have if you hadn’t locked in your price.
An oil dealer usually sells heating oil at a set cost only after the dealer has contracted to purchase a certain amount of heating oil from a producer at a specified price over a certain time period in the upcoming heating season. In this sense, the fuel dealer is in the position of the customer. A pre-buy contract assures that the customer must pre-purchase fuel oil. There are generally two different heating oil cap contracts:
- A fixed price contract means that you agree to purchase your heating oil in advance at a set price and is sometimes called a “pre-pay” contract. This “guaranteed rate” approach means don’t have to worry about a rate increase but if prices fall then you are forced into overpaying for your heating oil.
- A price cap contract is a kind of price insurance that places a limit on how high your heating oil prices can go so your price for oil can go down if the spot rate falls. If oil prices rise significantly, your price will be capped at whatever the predetermined maximum price listed in your contract. You will likely be paying a premium for the capped price.
Before locking in your price, be sure to do your research and compare rates from different companies. Also, be sure to read the fine print so that you know what exactly you’re getting into.
Most all dealers are out to sign you up to a contract with them. If you signed a contract with a dealer and you do not have a “pre-pay” contract or a “price cap” contract then you have what is called a “variable” contract. Basically, you are agreeing to pay whatever the current market price is when oil is delivered.
If you want to avoid contracts altogether, then you should research how to buy oil online from a discount oil provider. The truth is that all heating oil contracts are a gamble on the price of oil and it’s a lot like trying to tell the future. Remember what Yogi Berra famously said, “It’s tough to make predictions, especially about the future.”