For many propane customers, it seemed like a good idea to lock in prices for the winter by signing contracts last summer. Prices for heating fuel are traditionally lower in the summer. But prices over the past few months have been anything but traditional, and it is costing people who are under contract for the propane they are using to heat their homes.
According to figures from the Energy Information Administration, the residential price for propane was $2.56 per gallon in January 2008. By March, the price was up to $2.60 per gallon. The price hit a high of $2.66 per gallon in October, before the economic decline started, bringing fuel prices down across the board. At the close of 2008, the residential price for propane was $2.31 per gallon, a 14 percent drop from the previous winter.
It’s a sign of the economic times, according to Jim Shepherd, owner and operator of S&S Oil & Propane, 2608 W. Highway 50.
“Last summer, we sold propane at prices reflective of the price of propane at that time,” Shepherd said. “Since then, crude oil, gasoline, diesel and propane have dropped off.”
Shepherd says that people who signed contracts are obligated to pay the price under the contract, just as S&S is obligated to pay that price to its supplier.
“The agreement we made with them and we made with the sellers of the propane are contracts,” he said. “S&S doesn’t speculate on propane, so as our customers buy propane from us, we buy propane from our supplier, and they keep it in storage in our name for our delivery at a later date as our customers use it. So consequently, those that bought a contract this year bought it at a higher price than if you purchased it now.”
Shepherd says there’s no way to get out of the contracts, for customers or for the business.
“There’s no way to get out of that and no way for me to get out of it, because we’re in a contract too for the higher price,” he said. “It’s a binding contract. I signed the contract to take delivery.”
The trend of contracting for fuel has become a popular way to lock in lower prices instead of paying a premium during times of peak demand. S&S has propane contracts with more than 1,200 customers.
“Generally, throughout the summer we do these contracts,” Shepherd said. “Historically, the price of propane jumps up the first of September, so we kind of push to get that done during the summer to be ahead of that September price raise.”
Shepherd said that last summer was no different, and no one could have expected prices to fall as dramatically as they have.
“Nine years out of ten, (a contract) has been an advantage for the customer. ... When we were buying and they were buying, the experts were saying we were headed towards $200 barrels of crude oil.”
But the drop in prices is causing some grumbling among customers who feel they are being cheated.
“It’s hard for people to understand,” Shepherd said. “One customer I visited with said, ‘Now, you can’t tell me that you’ve got my gallons stored in your tanks out there somewhere, you’re buying this cheaper propane and still charging me the higher price.’ But basically, as we deliver those contract gallons to the customer, we then pull those contract gallons out of inventory and try to keep it even that way.”
And the customers who didn’t sign a contract last summer are the lucky ones.
“If they didn’t make a contract agreement last summer, then they would be paying the price that we deliver it for off the truck that day,” Shepherd said. “A current price, comparatively, to the current wholesale price.”
dale011 (anonymous) says...
I don't think anyone could have predicted this downturn last spring, and the price of oil didn't peak until July. Even though I have a contract with S&S, I don't feel like I'm being gouged. They offered to let us contract early and pay over a longer time period to help ease the financial burden. Stuff happens and we just need to get over it.
January 7, 2009 at 4:58 p.m. ( permalink | suggest removal )
jaredfromsubway (anonymous) says...
As long as you didn't pay over $1.99, I wouldn't feel gouged either.
January 7, 2009 at 5:42 p.m. ( permalink | suggest removal )
howdo (anonymous) says...
Would these people feel like they were taking advantage of S & S if the tables were turned?
January 7, 2009 at 9:15 p.m. ( permalink | suggest removal )
farmer10 (anonymous) says...
All of December till now the propane futures have ranged from 55 cents a gallon to around
75cents. The cheapest for the winter since
2003. If I remember right we paid around $1.25 the last time propane was this price. Mr. Shepherd doesn't want to give his contract
customers a break nor the ones that didn't. The last I bought he still wanted $1.90. I think he is
taking advantage of the situation.
January 7, 2009 at 10:24 p.m. ( permalink | suggest removal )
admireed (anonymous) says...
I just pair $2.09 (contract price) for a fill. Over the last 20+ years it was mostly an advantage to me to lock in propane in May-July. This year it is not. When Jim sells me a contract at $2.09 in May, he buys propane for winter deliovery at that price.
If you do not like this situation, heat electric!
January 7, 2009 at 10:39 p.m. ( permalink | suggest removal )
neighbor (anonymous) says...
Amen howdo, glad to see there are others with common sense around. Had a discussion at work about this issue earlier in the week, I asked several of them involved in the discussion the same question. Most admitted they wouldn't feel sorry for the suppliers if the tables were turned. I contracted for 200 gallons less propane this year as I filled up late in the fall and usually have contracted gas left over each spring. If the winter gets rougher and I use up the contract, perhaps it'll be less painful to buy outright.
January 7, 2009 at 11:15 p.m. ( permalink | suggest removal )