What are some possible reasons that a heating oil rep would be anticipating oil prices falling?

Question

We are planning on prebuying heating oil this year to avoid high costs if the price rises over the winter.

We can buy now, or wait until fall. The person I spoke to over the phone said she would advise us to wait, because "we expect prices will go down after summer." But this doesn't make sense to me. The price of literally everything is rising with no end in sight, plus the demand will be higher in fall when everyone starts filling up.

What are some possible reasons that a heating oil rep would be anticipating oil prices falling?

Answer 1

Heating oil is at record high prices. It's not unreasonable to think that the price will go down at some point, especially if production increases due to high prices. However, generally the cheapest time to buy oil is the summer when demand is low, so that is working against you.

Now, they could be lying, or they could just be wrong, or it could go down later than they predict - no one knows for sure.

The question is, are you willing to make that bet? The point of pre-buying is to lock in prices, taking out price risk. If you do not buy, and prices go even higher, could your budget afford it? Or would you adjust usage to reduce your cost? If you do pre-buy, and prices go down, would you be upset that you overpaid, or just be comforted that your prices were locked in either way?

If it were me, I would be hesitant to pre-buy at all-time high prices. But you do what makes sense for your budget.

Answer 2

What are some possible reasons that a heating oil rep would be anticipating oil prices falling?

The script they are reading from tells them to say this. If they will make more money if the prices do X, then they will tell you they will do the opposite of X in a few months.

Don't ask the person you are making a bet with, which option you should pick.

Answer 3

It's a good idea to plan your heating budget in advance.

What would be even wiser would be to plan how you could reduce your oil consumption, or remove it altogether. Oil prices are expected to stay volatile. If you gamble on oil-prices, you might win or lose some money in the short-term. If you keep on gambling every year, you will lose in the long-term. And in 10 years, you'll still be stuck with an inefficient, dirty and possibly banned oil burner.

If you have disposable income now, you should take a good look at insulating your home, or replacing your heating system with something more environmentally-friendly and not dependent on fossil-fuels.

Answer 4

Good plan to reduce risk usually is to diversify it.

• Firstly (although not directly asked), you may want to reduce your dependence on oil for heating. So for example invest in better heating insulation, buy a Heat pump for backup, perhaps some solar panels etc. That way, even if oil prices skyrocket even more (even as high as to become unaffordable to you; or even if the situation happens that there is not enough oil to fill the demand), you could still get by without it.

• Secondly, split the risk in oil price change. So you may (for example) buy 50% of the oil now, and 50% later. So even if the price later goes up by 40%, you'd only be hit by 20% increase (but similarly, if the price goes down 20%, you'd only save 10%). Of course you can choose other ratios instead of 50-50 (depending on how comfortable you are to price volatility) as well as buy it in more then two installments (but note that there is extra cost to each installment)

As for the theoretical forecast:

What are some possible reasons that a heating oil rep would be anticipating oil prices falling?

Firstly, the person might be lying, either to increase their company profits, or to avoid spreading panic leading to their demise (for example, if they don't actually have enough oil to sell).

Or, they could be speaking their true belief, based on many economic analyses. That would likely get more extensive on economics SE or politics SE. There are many possible reasons: supply and demand (and many countries involved), possible government measures, weather forecast, estimates of political (de-)escalation with Russia, and other more-or less crystal-ball attempts of predicting the future.

You could ask them why they expect such price changes, and then you'd have one more datapoint to do research on and eventually decide on your tactics. (for which I've suggested relatively safe methods above)

But note: vast majority of such predictions would always be proven wrong -- as there is only one outcome that would come true, and all others would be shown as false. It might depend on how good economic analytics the person you spoke to was (although if they were good at it, I'd suspect they would be working in economic forecast sector instead), but what would actually happen to prices it is likely to be based more on your luck than on all forecasts in the world.

Basically, treat their advice in no higher regard than if your favorite news portal recommended you that now is the time to buy (or sell) Tesla or Apple stock, or sell (or buy) Bitcoin.

Answer 5

Oil prices are high mostly because of the Russian invasion of Ukraine, this has driven market fears of supply problems, and desire in the West to avoid buying Russian oil (pointlessly, because Russia just sells that oil to China, etc. at higher prices now).

But global oil production hasn't changed much, and is expected to outstrip consumption through the latter part of this year. This is expected to lead to a modest fall in prices.

Answer 6

Large, liquid markets like oil are efficient and market participants make use of almost all available information when engaging in price discovery. Predicting what the price will be in the future is not realistic for the ordinary person. What a sales rep said on the phone should certainly not be treated as a market signal.

The rep has no basis to be anticipating any kind of price action, so the logical conclusion is that she is taking unsupported assumptions as fact. There is little point in trying to divine what was on her mind.

That said, if I ran a company that buys a commodity in bulk and then resells it to retail customers at profit, and I ever caught my rep talking people out of buying at a record high price, I'd fire her on the spot. Seems more likely to me like the company thinks the prices will go up, so they're having the rep tell you to wait, so you have to pay even more later - after summer - when it's getting cold and people start buying the oil, driving prices up.

Answer 7

When prices are up due to political events that can reverse suddenly (such as a war), then prices can collapse when that event is over. Wars can cut off oil supplies and make transport of the commodity more risky to ensure. Wars can also end, and with their ends come lower prices.

If one can put the blame on a government for inflating the money supply, then one can expect prices of oil to keep rising.

Answer 8

I study investments, and I should say, heating oil is one of investments with highest volatility, because long shelf life and large request fluctuations.

I'm not deep enough to suggest you strategy, but looks like person, you spoke to, right, that current prices much higher than usual.

But as Ukrainian, I could also say, Russian invasion could last to end of year or even more, and all this time prices will be high, because Russia is one of the largest oil exporters in the world, and EU/US/UK issue sanctions to Russian oil export, and their huge energy demand, will supplied from other sources.

Things are so serious, that now considered even reopen some coal power plants.