High Oil Prices Are Costing Dealers and Their Customers

When oil prices nearly double in a year, you can almost hear the groans of stressed homeowners.

They’re worried about how they’re going to pay for heat next winter.

Now imagine you’re selling heating oil, and you need to buy thousands of gallons to resell to customers.

Bob Garside heads the Oil Heat Council of New Hampshire.

He says dealers will really feel the pinch of high oil prices when cold weather inevitably sets in.

If you look at 10 loads a day at four dollars and a half a gallon, you’re coming up with 45,000 dollars a load, you know, 10,000 dollars times 10, so you have to come up with 450,000 dollars in five days….

That’s upfront.

Of course, dealers expect to make that back as they sell their oil.

In the meantime, many dealers need to line up financing.

Walter Hall of Kidder Fuels in Tilton says that’s not unusual.

If we drop back 5 years ago, and if I had a 50,000 dollar line of credit with a bank downtown, that 50,000 dollar line of credit would finance 10 loads of oil.

Hall says what’s different now is oil prices are outrunning the credit lines.

Now the bank 5 years later says, that’s isn’t enough, let’s double that and gives you a hundred thousand line of credit. what does that buy, well a month ago that would have bought me 2 and a half loads of oil.

Officials at the New England Fuel Institute outside of Boston say this financial squeeze is going on all over the region.

President Shane Sweet says if dealers are taking on increased payments that come due more often, they need to ask customers to pay for deliveries more quickly come winter.

I mention they have to collect their money within terms because if you model this out you know the difference of three or four days in collecting your bills you know on average could be the difference between having enough cash on Tuesday to go buy that next load of oil or not.

Walter Hall of Kidder Fuels says his company has frequently given longer payment terms to customers who were having trouble.

But as he thinks about that arrangement, he’s not sure how long it can continue.

You know they’re a long term customer and they’re going to break it up into maybe three installments over a six week period should we say you know …we may not be able to do that anymore, especially if it comes up you know you get into January or February and they need a second delivery. You know, filling up a tank today you’re talking 7, 800 dollars. That’s a lot of money.

Many dealers say worried customers are taking steps to cut consumption.

Some have put in wood or pellet stoves.

Others have minimized heat loss by installing insulation.

Shane Sweet of the New England Fuel Institute says fuel switches and conservation could lower demand for oil, which presents another problem to dealers.

For the retail guy who you know to use simple math does a million gallons a year and all of a sudden he’ doing 800,000, you know that’s a twenty percent hit and that’s twenty percent of the gallons that you’re not going to be selling so you can forget about earning any money on what you don’t sell.

One piece of good news for dealers and customers is that the price of heating oil has come down about ten percent from its recent high.

That will make heat a little more affordable come winter.

Dealers would like lower prices too, since it would simplify the finances they’ll face when the cold weather hits.