EagleTribune.com, North Andover, MA

September 11, 2013

Turmoil in Syria sends pre-buy oil prices soaring

Price fluctuations lead to pre-buy concerns

By Doug Ireland
direland@eagletribune.com

---- — As colder weather draws near, fuel companies are asking customers to decide if they plan to purchase home heating oil contracts with fixed rates.

But turmoil in the Middle East, especially Syria, has made that annual decision a little more difficult than usual.

President Barack Obama’s consideration of a possible airstrike against Syria has led to volatility in world petroleum markets, leading to rapidly rising prices in the past two weeks.

Southern New Hampshire fuel companies have reported prices increases of 10 to 15 cents a gallon ever since Obama threatened military action against the regime of Syrian President Bashar Assad. Assad is accused of leading a chemical weapons attack last month that killed more than 1,400 Syrians outside Damascus.

With some companies setting Sept. 30 as the deadline to sign up, fuel customers are calling to check on the widely fluctuating rates. If the market price rises, firms increase their prices as well.

Home heating oil averaged $3.411 a gallon in the area yesterday, according to NewEnglandOil.com.

“Our cost went up 15 cents one day last week,” said Bill West, manager of Rockingham Oil in Derry. “There was speculation. Are we going to bomb or are we not?”

At Palmer Gas/Ermer Oil in Atkinson, the price of a gallon of oil increased about 10 cents in the last two weeks because of the situation in Syria, general manager Joseph Trefethen said.

That’s affected fixed-rate contracts as well, Trefethen said.

“With the volatility going on in our world, you don’t know what the price is going to be come January,” he said. “With the pre-buy contracts, the prices for gallons this month have risen dramatically.”

Customers traditionally purchase fixed-rate contracts in the summer and early fall to protect themselves from soaring price increases in the winter. More customers are relying on budget plans so they can spread their fuel payments over a 12-month period, according to Palmer Gas/Ermer Oil customer service representative Natalie Taylor.

She said many customers have been inquiring about pre-buy contracts, even though her company doesn’t have a deadline to sign up.

“In the last week or two, I’ve been getting a lot of calls,” Taylor said. “They may be gone before Sept. 30.”

But the pressure to sign up for a fixed-rate deal diminished some yesterday upon news that a U.S. attack on Syria was no longer imminent, according to Gregg Laskoski, a petroleum analyst for GasBuddy.com.

That’s because Assad’s government promised to cooperate with a plan proposed by Russia that calls for Syria to place its chemical weapons under international control, he said.

“It looks like we will be averting that military action,” Laskoski said.

Assad’s vow to cooperate saw stock future rises and oil prices dropped on Wall Street late yesterday afternoon. The Dow Jones industrial average soared 127 points, closing at 15,191. The price of crude oil, which was $110 a barrel on Friday, dipped to $107.39 a barrel. That compares to $92 per barrel in late June.

But even yesterday’s decline probably isn’t enough motivation for some Southern New Hampshire fuel customers to sign up for pre-buy contracts.

West and Trefethen said their companies have been seeing fewer pre-buy customers in the last several years. West estimates that fewer than 10 percent of his customers opt for the fixed-rate deals.

He said widely fluctuating market prices in recent years and the slumping economy have made it difficult for some to obtain pre-buy contracts.

“For the most part, people are staying away,” he said. “People just don’t trust the market.”

Some smaller companies no longer offer the contracts because it’s not worth the financial risk for them or their customers. State law requires dealers to lock in their contracts with suppliers when offering pre-buy prices, leaving them with little flexibility.

Leo LaRochelle, president of Victory Fuel in Newton, has said although he still offers pre-buy contracts, he doesn’t promote them like he once did. This year, the company stopped offering them Aug. 1.

Neighbor’s Oil in Plaistow decided not to offer pre-buys this year because of the “artificially inflated cost of oil,” according to the company’s website. Owner David Jones could not be reached yesterday for comment.

Material from The Associated Press was used in this report.