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Why Oil Dealers Like Fuel Oil Coops

Fuel co-ops can benefit heating-oil dealers by bringing in customers and making delivery more efficient. Shannon Hill is head of business development for Simply Green Biofuels, in Portsmouth, New Hampshire, which deals exclusively in biofuels. She says, "From a logistical standpoint, we are able to keep our deliveries nice and tight so that we are saving on expenses (fuel, drivers. pay, etc.), and we are able to keep our carbon footprint to a minimum."

Hill says the size of the co-op is an important factor from the company's perspective. "It depends on whether or not the co-op is a group of neighbors or a group of widespread friends, family, or coworkers (where multiple towns are involved). A good rule of thumb is 10 homes on one block, or 10,000 gallons for a widespread co-op -- these are our minimums."

With both dealers and customers bracing for a tighter heating oil market this year, discounts may be affected. Barbara Troxell organized a fuel oil coop of about 50 families in Madbury, New Hampshire. Troxell's dealer is charging 35 cent per gallon for downside price protection. In effect, the price would have to drop more than 35 cents for it to be worthwhile. The company has also reduced the discount on the service contract.

Ed Peter of Dwyer, Inc., a 133-year-old Philadelphia-based dealer, thinks locking in prices can be risky for everyone. "The market price has been like a roller coaster these past two years," he says. "We don't know which way it's going to go this year."

Indeed, during the last two years, the price of heating oil actually dropped in the winter. And recently, the cost of crude oil (on which the cost of heating oil depends), took a dip. The stratospheric prices of the past few years have caused people to use less, which results in decreased demand, which eventually drives the price down.

In the early 1990s, oil heat dealers began using hedging and forward buying to help stabilize prices. "In New England retail dealers buy from terminal operators (suppliers) at various locations, including Canada for northern New England," explains Shane Sweet, president and CEO of the New England Fuel Institute. "Retailers and suppliers can and do use market mechanisms, including 'futures contracts,' and can do so either through their suppliers directly or via a third party that offers management of purchasing contracts."

But, according to the National Oilheat Research Alliance, "Volatility in the market has increased the price of hedges. As a result, few customers are opting for this strategy, which affects both storage and the amount of forward-purchased product."

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