Prepare Now for a Pricey Winter Heating Season

Typically, each summer, many heating oil providers offer customers the option to sign up for price protection programs, which allow them to lock in prices on heating oil well before a chill starts to tinge the air. (Some providers request an upfront payment where others let you pay that amount over time.) After months of sharp increases in heating oil prices, however, many providers are suspending the programs, leaving homeowners to weather the rise and fall of oil prices on their own.

Without these programs, homeowners will need to brace themselves for a costly winter heating season ahead. Residential heating oil prices are projected to rise 29% to $4.46 per gallon in the fourth quarter of 2008 from $3.16 per gallon during the same period last year, according to the Energy Information Administration. Those who use natural gas to heat their homes (a fair majority at 48% of U.S. households) shouldn't expect to fare much better. The EIA projects the average price of natural gas to rise 27% year over year (from $12.65 per thousand cubic feet in the fourth quarter of 2007 to $17.21 per thousand cubic feet in fourth quarter of 2008).

These bleak projections don't factor in possible disruptions in crude oil (where heating oil comes from) and natural gas production that could occur during the Atlantic hurricane season, which runs from June to November, says Brandon Wright, spokesman for the Petroleum Marketers Association of America (PMAA), a federation of regional and state associations of heating fuel distributors.

Whether the hurricanes come or not, here are some money-saving moves homeowners can do now before the thermostat starts to plummet.

Price-protection programs typically come in two options: fixed or capped.

Capped Program
Given today's volatile market, the best option is to sign up for the price-capped program, which puts a ceiling on the price the consumer pays during the upcoming winter season. "The price cap is a reasonable option because it covers you both ways," says Richard Goldberg, president of Warm Thoughts Communications, a consulting company for heating oil and propane providers.

Say the cap on a program is $5 a gallon. Should heating oil prices reach $5.50, the customer will still pay $5. And if heating oil prices head the other direction and drop to $4.50, the customer only pays $4.50.

If you choose this program expect to pay an added fee. Many companies add a premium to this program that ranges from $125 to $300 depending on where you live and how much fuel you use. You'll either have to pay this amount upfront or it will be spread out in your monthly payments, says Goldberg.

Fixed Program
With a fixed-price program, a customer locks in a fixed price for heating oil, which they're required to pay regardless of whether heating oil prices increase or decrease.

Considering that heating oil and natural gas prices are expected to rise, locking in today's price should help consumers save money this winter. But given the daily and weekly volatility in heating oil prices, there's no guarantee prices won't take a dip in a few months. "A lot of people believe there's a lot of froth in this market and that prices can drop about 60 cents," says Goldberg. "One thing to be careful of is the momentum theory that heating oil is going to continue to rise."