POLL QUESTION

Turbulent oil market leaves Mainers guessing about heating contracts

Posted June 24, 2011, at 6:47 p.m.
Last modified June 24, 2011, at 9:21 p.m.

Poll Question

BANGOR, Maine — President Obama hopes oil and gasoline consumers are breathing a collective sigh of relief after his order Thursday to release 30 million barrels of crude from the nation’s emergency reserves, but here in Maine oil retailers and energy experts are taking a wait-and-see approach.

The price of oil at both the retail and wholesale levels has been so turbulent in the past three or four years that predicting what effect Obama’s order will have is a bit of a guessing game, according to Jamie Py of the Maine Energy Marketers Association. But the short-term effect — i.e., 24 hours later — is obvious.

“Yesterday was wild,” Bob Moore, president of Dead River Co., said Friday. Dead River sells heating fuels and gasoline on a vast scale in Maine, New Hampshire and Vermont.

“Crude oil dropped about $4.50 a gallon and heating oil futures dropped almost 15 cents a gallon,” he said. “Today, it’s gotten under control.”

Obama’s 30 million gallon release from emergency petroleum reserves, which will be accompanied by an additional 30 million gallons of oil from 27 other countries, was meant to spur the economy, but Py wonders whether the effect will last.

“It is an emergency reserve that was not intended to be a manipulator of the marketplace,” he said. “You reduce the price by putting more oil on the marketplace, but we have to replenish the reserves. It’s kind of like printing dollars.”

At a time when many Mainers are considering ways to pre-buy their oil or kerosene for next winter or sign up for price-capped plans, major events in the national and world energy markets can create uncertainty for both consumers and dealers.

According to the governor’s Office of Energy Independence and Security, the average price of gasoline in Maine is about $3.70 per gallon, which is down 20 cents from a month ago but 90 cents higher than this time last year. The price of a gallon of heating oil on Friday ranged from $3.15 in southern Maine to $3.70 in the north and was creeping downward.

Py said trying to predict what will happen with petroleum prices in six months, six weeks or even six days is becoming more difficult.

“Historically these kinds of swings in prices were very unusual until about three or four years ago,” he said. “At the moment, the price of heating oil moving 15 cents is becoming unfortunately more normal. The volatility does pose tremendous challenges to a retail dealer. It gives each company a lot of heartburn.”

Moore said that Dead River, like lots of other dealers, offers various ways of buying oil — any of which is to some extent a gamble by both the company and the consumer. In past years when the price of petroleum was more steady, many customers chose to lock in a price. Then the winter of 2008-09 the market started to see-saw and the daily cost of oil plummeted below the locked-in price.

“These people were not happy campers even though they’d gotten what they signed up for,” said Moore. “By the same token, if you’re in our shoes and gone out and bought the oil futures, what can you do?”

Moore said a lot of customers pay cash or sign up for a cap program, which means they pay a fee to guarantee their oil won’t go above a certain price and receive market prices if they go below the cap. The struggle for companies is what to set the cap at — and when. For consumers, the issue weighs on whether to pay the fee for a cap program or take their chances buying their oil when they need it.

“The general public isn’t watching the futures screens constantly like I am,” Moore said.

Mike Colson, manager of C.N. Brown Co. in Rockland, said a lot of people have been calling recently to check on the price of oil and purchasing plans.

“It’s still a little early to tell how things will go,” he said. “The price of oil has been creeping down very slowly just like gasoline.”

The owner of a small oil company in the Bangor area, who didn’t want to be identified because he didn’t want to disenfranchise customers, said he stopped offering cap and lock-in plans three years ago.

“Everything’s unpredictable,” he said. “If we’d [offered a fixed-price plan] two years ago, everybody would have gotten burned.”

Jeffrey Marks, deputy director of Gov. Paul LePage’s Office of Energy Independence and Security, said he monitors the prices of petroleum products regularly in order to try to be proactive about dealing with energy price fluctuations either in Maine or on a broader scale. With the task becoming harder, he said the LePage administration’s goal — as has been the goal in Maine for many years — is to develop other energy sources, such as natural gas, and teach Mainers to conserve.

To that end, the Legislature this session passed LD 553, An Act to Improve Maine’s Energy Security, which requires the development of an oil dependence reduction plan by the governor’s energy office and the Efficiency Maine Trust. But that’s a long-term solution, said Marks.

“It’s hard to look into the crystal ball and guess what prices will be in weeks or months from now,” he said. “The Obama administration and others felt it was necessary to tap into the strategic petroleum reserve to improve the economy and push prices lower for transportation and heating fuels. I think it’s a short-term fix.”

Moore agreed.

“I think it’s too much political maneuvering,” he said. “Unless you’re willing to drill and increase production, you’re just playing games.”

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