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With oil prices dropping, members of our board are pushing agressively for locking in a price for the upcoming calendar year, while others are vehemently against it.
What are the thoughts of those on Board Talk as to the pros and cons of such an action on a budget, as I am undecided.
Of course there is absolutely no way to know how the price of crude oil will fluctuate over the next six months. That said, the current price of about $62 per barrel is the lowest in a year, and it is certainly reasonable to consider a price lock.
A key point is the precise terms of the forward contract you sign. How much of your fuel oil will be purchased at the agreed rate? Is this a fixed rate or (preferably) a rate cap? If the price of oil plummets, is there a way to get out of the contract by paying a cancellation penalty?
As another poster mentioned, a rate lock will allow you to draw up a more precise budget, which is yet another advantage.
The New York Times ran an article a few days ago (see URL below) that was all about homeowners who regret having locked in the price of oil last summer when prices were peaking. Can someone tell me what the point of that was? Is is that homeowners should have been able to look in a crystal ball and predict the future, when all the experts and talking heads on TV were wailing and moaning that the sky was falling and oil prices were only going to rise?
In case anyone else wants to get as apoplectic as I over this hindsight nyah-nyah story, it's at
http://www.nytimes.com/2008/10/23/nyregion/23fuel.html?_r=1&scp=1&sq=locking%20in%20oil%20prices&st=cse&oref=slogin
For the record, we did not do a lock-in last summer, but I would hardly fault any board that did. Jim Cramer and all those other "experts" should be ashamed of themselves for not providing a disclaimer: "We really don't know any more than you do, but we say things with authority and entertainingly, and you morons believe us and keep coming back for more. Ha ha ha, look at my bank account!"
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Our board decided to lock in with a fixed-price contract for 50% of our needs for the heating oil which will allow for some flexibility.
Locking in with a fixed-price contract would allow for a more accurate estimate of a budget for heating oil.
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