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We are planning on prebuying heating oil this year to avoid high costs if the price rises over the winter.

We can buy now, or wait until fall. The person I spoke to over the phone said she would advise us to wait, because "we expect prices will go down after summer." But this doesn't make sense to me. The price of literally everything is rising with no end in sight, plus the demand will be higher in fall when everyone starts filling up.

What are some possible reasons that a heating oil rep would be anticipating oil prices falling?

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    Novices always panic and "buy high sell low". "No end in sight" is basically the financial version of "hold my beer" lol. Jun 23 at 5:05
  • If prices fall you could be kicking yourself for not getting a better deal, if they rise you could have a cold winter. The gamble is up to you, the heating oil rep does have a vested interest in avoiding panic buying so take their advice with a pinch of salt. Jun 23 at 12:57
  • Can you make that more clear? If you're really asking about a heating oil rep, who is he that you base your financial planning on his opinion? If you're actually asking a finance consultant with specialist knowledge of the heating oil market, why not say so? Jun 23 at 21:49

8 Answers 8

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Heating oil is at record high prices. It's not unreasonable to think that the price will go down at some point, especially if production increases due to high prices. However, generally the cheapest time to buy oil is the summer when demand is low, so that is working against you.

Now, they could be lying, or they could just be wrong, or it could go down later than they predict - no one knows for sure.

The question is, are you willing to make that bet? The point of pre-buying is to lock in prices, taking out price risk. If you do not buy, and prices go even higher, could your budget afford it? Or would you adjust usage to reduce your cost? If you do pre-buy, and prices go down, would you be upset that you overpaid, or just be comforted that your prices were locked in either way?

If it were me, I would be hesitant to pre-buy at all-time high prices. But you do what makes sense for your budget.

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    An all-time high price typically is no longer an all-time high price (meaning the price continues going higher, repeatedly setting a new all-time high price).
    – 7529
    Jun 21 at 7:00
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    @7529 Look at the price of HO over the last 20 years - prices have gone up and down significantly. Yes the trend is to go up but it's not unreasonable to think that the price will go down.
    – D Stanley
    Jun 21 at 13:38
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    @DStanley If question was posted in 2010, the OP would have to wait 5 years to buy oil at a lower price. The fact the price of oil is at a historical high now, doesn't mean it will drop before it rises again, and doesn't mean it will be a short period of time before it falls. (Example 2011). You may be correct that it's "reasonable" to think the price will go down, the question is when. Jun 22 at 7:18
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    HO was not at an all-time high in 2010. If they had locked in in 2008 (another time of great uncertainty), they would have paid double what they would have paid if they had not locked in. And I'm not saying it will go down, I'm saying there's valid reasons to think that it might, and less compelling reasons to think that it will definitely go up. If it's me I'm not locking in at high prices. I'm taking a chance that it will go down (knowing that I might be wrong).
    – D Stanley
    Jun 22 at 13:33
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What are some possible reasons that a heating oil rep would be anticipating oil prices falling?

The script they are reading from tells them to say this. If they will make more money if the prices do X, then they will tell you they will do the opposite of X in a few months.

Don't ask the person you are making a bet with, which option you should pick.

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    @user253751 Seriously? "Why would someone say something if it would make them money?"
    – Brondahl
    Jun 21 at 9:04
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    @user253751 If the company experts believe that the price will go up, then the company may have made a bet that the price will go up, now they need their customers to act in a certain way. That is the answer that the person on the phone is told to say. Jun 21 at 10:06
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    I don't think this makes too much sense. If prices go up even further, they just lost a customer that will avoid them out of spite. If prices go down, they make less money. ((obviously, assuming something resembling competition, which might not be a given)) Jun 21 at 11:39
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    If the company anticipates the price of oil to keep rising, it would be in their best financial interests to get the customers to buy in the future (when they can sell for more) instead of buying it now (when it's cheaper)
    – Luke
    Jun 21 at 11:55
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    Companies selling heating oil expect years, maybe decades, of repeat custom. Screwing a customer for a small benefit one year is bad business. Jun 21 at 14:58
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It's a good idea to plan your heating budget in advance.

What would be even wiser would be to plan how you could reduce your oil consumption, or remove it altogether. Oil prices are expected to stay volatile. If you gamble on oil-prices, you might win or lose some money in the short-term. If you keep on gambling every year, you will lose in the long-term. And in 10 years, you'll still be stuck with an inefficient, dirty and possibly banned oil burner.

If you have disposable income now, you should take a good look at insulating your home, or replacing your heating system with something more environmentally-friendly and not dependent on fossil-fuels.

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Good plan to reduce risk usually is to diversify it.

  • Firstly (although not directly asked), you may want to reduce your dependence on oil for heating. So for example invest in better heating insulation, buy a Heat pump for backup, perhaps some solar panels etc. That way, even if oil prices skyrocket even more (even as high as to become unaffordable to you; or even if the situation happens that there is not enough oil to fill the demand), you could still get by without it.

  • Secondly, split the risk in oil price change. So you may (for example) buy 50% of the oil now, and 50% later. So even if the price later goes up by 40%, you'd only be hit by 20% increase (but similarly, if the price goes down 20%, you'd only save 10%). Of course you can choose other ratios instead of 50-50 (depending on how comfortable you are to price volatility) as well as buy it in more then two installments (but note that there is extra cost to each installment)

As for the theoretical forecast:

What are some possible reasons that a heating oil rep would be anticipating oil prices falling?

Firstly, the person might be lying, either to increase their company profits, or to avoid spreading panic leading to their demise (for example, if they don't actually have enough oil to sell).

Or, they could be speaking their true belief, based on many economic analyses. That would likely get more extensive on economics SE or politics SE. There are many possible reasons: supply and demand (and many countries involved), possible government measures, weather forecast, estimates of political (de-)escalation with Russia, and other more-or less crystal-ball attempts of predicting the future.

You could ask them why they expect such price changes, and then you'd have one more datapoint to do research on and eventually decide on your tactics. (for which I've suggested relatively safe methods above)

But note: vast majority of such predictions would always be proven wrong -- as there is only one outcome that would come true, and all others would be shown as false. It might depend on how good economic analytics the person you spoke to was (although if they were good at it, I'd suspect they would be working in economic forecast sector instead), but what would actually happen to prices it is likely to be based more on your luck than on all forecasts in the world.

Basically, treat their advice in no higher regard than if your favorite news portal recommended you that now is the time to buy (or sell) Tesla or Apple stock, or sell (or buy) Bitcoin.

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Oil prices are high mostly because of the Russian invasion of Ukraine, this has driven market fears of supply problems, and desire in the West to avoid buying Russian oil (pointlessly, because Russia just sells that oil to China, etc. at higher prices now).

But global oil production hasn't changed much, and is expected to outstrip consumption through the latter part of this year. This is expected to lead to a modest fall in prices.

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    Why would Russia be able to sell that oil to China at higher prices than before? There's suddenly much less global demand for Russian oil (since western countries are hesitant to buy it) which should drive Russian oil prices down (while at the same time increasing the price of non-Russian oil).
    – Dreamer
    Jun 22 at 7:28
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    @Dreamer: Because oil are sold on commodity markets. Russia is selling at a discount vs. Brent crude but that's still a significantly higher price than it was before. Go and look it up. Jun 22 at 7:41
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    Also as China is swapping its oil imports to be primarily Russian, it is importing less from everywhere else. This drop in demand is likely to result in a a drop in non-Russian oil prices
    – Phil
    Jun 22 at 11:28
  • Actually they're having to give away oil at fire sale prices to anyone who will buy, that means China, India and Syria are getting bargain prices. And because of the very high ruble, the Euros/dollars they are paying don't buy many rubles to pay their workers with. Sucks for Russia. Jun 23 at 23:45
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Large, liquid markets like oil are efficient and market participants make use of almost all available information when engaging in price discovery. Predicting what the price will be in the future is not realistic for the ordinary person. What a sales rep said on the phone should certainly not be treated as a market signal.

The rep has no basis to be anticipating any kind of price action, so the logical conclusion is that she is taking unsupported assumptions as fact. There is little point in trying to divine what was on her mind.

That said, if I ran a company that buys a commodity in bulk and then resells it to retail customers at profit, and I ever caught my rep talking people out of buying at a record high price, I'd fire her on the spot. Seems more likely to me like the company thinks the prices will go up, so they're having the rep tell you to wait, so you have to pay even more later - after summer - when it's getting cold and people start buying the oil, driving prices up.

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    That's not true. Since oil is (also) traded as a en.wikipedia.org/wiki/Futures_contract , that company can very well already have a contract for receiving oil X months into the future at a price already determined today. So they can very well know that the oil they'll sell in X months will be cheaper for them than the oil they are currently selling - and insomuch as market forces are in effect, would reduce consumer prices in X months accordingly.
    – Dreamer
    Jun 22 at 7:35
  • @Dreamer and what about the price when they sell in X months plus 1 day? Then there will be new contracts and new pricing and so on. If I go to a gas station and ask the guy at the cash register if gas prices are going up or down tomorrow no one would be answering as though he’s intimately aware of the price hedging strategy of the oil company.
    – quid
    Jun 22 at 14:33
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    I agree with the first paragraph, but the third sounds like a good strategy for getting rid of repeat customers. Jun 22 at 15:07
  • @quid I'd assume that an oil reseller will have their own large storage tanks to deliver their customers from. The company would estimate how often these need to be refilled (e.g. twice per month) and would buy future contracts for those times well ahead of time. Thus, it would not be future contract prices at arbitrary times that matter to them, but only those for which the company has already bought contracts. From the perspective of the company selling you oil, their costs wouldn't change between two of these delivery dates.
    – Dreamer
    Jun 23 at 5:59
  • Lot of assumptions…
    – quid
    Jun 23 at 7:21
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When prices are up due to political events that can reverse suddenly (such as a war), then prices can collapse when that event is over. Wars can cut off oil supplies and make transport of the commodity more risky to ensure. Wars can also end, and with their ends come lower prices.

If one can put the blame on a government for inflating the money supply, then one can expect prices of oil to keep rising.

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  • Both factors are in play, as well as at least one more with comparable effect - post-covid oil consumption rise. Drillers and especially refineries are not capable of expanding the production quickly enough.
    – fraxinus
    Jun 22 at 7:34
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I study investments, and I should say, heating oil is one of investments with highest volatility, because long shelf life and large request fluctuations.

I'm not deep enough to suggest you strategy, but looks like person, you spoke to, right, that current prices much higher than usual.

But as Ukrainian, I could also say, Russian invasion could last to end of year or even more, and all this time prices will be high, because Russia is one of the largest oil exporters in the world, and EU/US/UK issue sanctions to Russian oil export, and their huge energy demand, will supplied from other sources.

Things are so serious, that now considered even reopen some coal power plants.

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