Heating oil prices fall, but slowly

Posted Oct. 15, 2008, at 11:55 p.m.

The price of a barrel of oil dropped below $75 on Wednesday, a mark not seen since September of last year.

Relieved Mainers have been seeing prices skidding at the gas pump, and home heating fuel prices are falling, too — although not as fast as they rose.

Some of the state’s small heating fuel dealers said the volatile oil prices are putting them in a bind.

“Small oil dealers — even big oil dealers — are all struggling right now,” said Mike Bragdon of Bragdon Energy Services in Millinocket. “It’s tough. I’d love to be able to sell fuel at 99 cents a gallon and everyone would be happy, including myself. I’d sleep better at night. My banker would be a lot happier.”

One reason why Bragdon said that he’s not making a killing off the market is because of its unpredictability. He said that he bought 10,000 gallons of fuel Tuesday night, and by the time the market had settled on Wednesday, oil prices were 20 cents a gallon lower than what he had paid. If he sold all that oil at Wednesday’s rate, he’d be out $2,000.

That’s why Bragdon and other small dealers have to walk a tightrope, lowering prices enough to be competitive while not losing too much money, either.

“If we get a huge drop, I take as much of a hit as I can and still stay in business,” the dealer said.

Other reasons for the industry’s slim profit margins include operating expenses that have shot way up and credit markets that have considerably tightened.

Bragdon said the cash price he was asking for No. 2 heating oil on Wednesday was $2.99 a gallon, 30 cents cheaper than found in some of the state’s larger dealerships, such as Dead River and C.N. Brown. About a week and a half ago, on Oct. 6, Mainers paid an average price per gallon of $3.62 for heating oil, according to the Governor’s Office of Energy Independence and Security.

Oil prices have tumbled a staggering 49 percent since soaring to an all-time high $147.27 on July 11.

A gallon of regular gas fell nearly 4 cents overnight to a new national average of $3.125 on Wednesday, according to auto club AAA, the Oil Price Information Service and Wright Express. That left prices nearly 10 percent lower from where they were only a week ago and almost 25 percent down from their all-time high of $4.114 set July 17.

Worries about a recession are strengthening expectations that crude prices still have some way to go before they bottom out. Trader and analyst Stephen Schork suggested that $50-per-barrel oil “is now within the realm of possibilities.”

The ups and downs in the market in the last few years have been scary, Bragdon said.

“If you’re going to play in the futures market with heating oil, you might as well take that money and play in Hollywood Slots,” Bragdon said. “If you gamble with heating oil futures, you’re going to lose, and you’re going to lose hard.”

Some Mainers who locked in prices at the summer’s much higher rates are in a similar boat.

Dealer Jimmy Brown of Brown’s Cash Fuel in Carmel also likened the oil markets to gambling.

“It’s a complete crapshoot,” he said.

Brown’s highest fuel prices ever came about three months ago, when he charged $4.61 a gallon. His No. 2 fuel was selling for $2.97 per gallon Wednesday. The dealer said that he checks the changing commodity price for oil on Bloomberg.com, a financial Web site, at least six times a day.

“It’s just a way of how to second-guess what’s going to happen the next day,” he said.

But still, small dealers say that they’re at the mercy of their oil suppliers to set consumer prices, and that the logic behind the slower downward price trajectory seems confusing to them, too.

“For the life of me, I can’t figure it out either,” said Bragdon. “When it goes up, it seems to go up overnight. … Sometimes our price will go up two or three times in one day. But if there’s a huge drop, I’ve never heard [suppliers] say, ‘Hey Mike, the price went down.’”

The Associated Press contributed to this report.

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