Why are Oil and Propane prices so darned high?

I just Googled “Why are oil prices so high,” and I hit Wiki.Answers top response:  “Because Big Oil found a new way to rip off the consumer.”  This is amusing, and perhaps satisfies our feelings of helplessness, but I’d like to offer some real answers, a future outlook, and some tools.

Oil and Propane are high priced for different reasons:  Oil is up mainly because it has been so very cold this winter.  The Polar Vortex, which is responsible for snow in Louisiana and a highway of abandoned cars in Georgia, has also brought Litchfield County more days of single digit cold than we’ve had in five years.  When demand outpaces expectations (and inventory planning), wholesale prices rise.

Gasoline Prices Are Low

Interestingly, this is also why gasoline prices have dropped recently.  When a barrel of crude oil is refined, we get some heating oil and some gasoline, but we always get both.  With heating oil in such high demand, refiners are forced to produce more gasoline than we need, so they keep dropping the price until it all gets sold.

Pipelines, Railroads, and Ships

Propane is expensive for the same reason, but also because of some important recent events:

• Agricultural demand in the Midwest drew down Propane inventories this past autumn, leaving the nation ill-equipped to deal with the increased demand of the Polar Vortex.

• The pipeline supplying Propane to the Northeast depends on storage facilities along the way to maintain a steady flow, and one of those facilities (an underground salt dome) collapsed in Louisiana.  Pipeline capacity was reduced to less than half the expected volume.

• Remember those two train derailments in Canada recently?  The railway responded by cutting freight speeds to 50%, which made “just in time” inventory impossible.  Then the cold weather froze the air brakes on the trains, and they stopped altogether.  Two wholesalers declared “Force Majeure” – meaning they canceled all their contracts – and the few loads that made it through are selling to the highest bidder like French antiques.

• Finally, we get a few ships carrying Propane into New England ports each year, but they are undependable (two weeks late on average), and very expensive.

The result of all this is that Propane costs have risen over a dollar a gallon in just a few short weeks.

We Don’t Benefit from High Prices

High prices are very difficult for us, and we carry the same margins whether the price is high or low.  Our mission is to keep our customers happy over the long term with comprehensive services and personal attention.  The sooner prices drop, the happier we’ll be.

Your Fuel Supply is Guaranteed

Although some companies are unable to make full deliveries to their customers (even right here in Litchfield County), we have our own storage in Bantam and in Litchfield, and ironclad contracts with strong suppliers.  Bantam customers are well protected.

Long Term Price Outlook:  Very Good

The long term price outlook for both Oil and Propane is very good, because of dramatic new domestic discoveries.  This abundant supply of petroleum has been made accessible by the new shale gas technology, and it is already beginning to flood the crude markets.  This should translate into lower prices as early as next Fall.

Dynamic Price Caps, and more

I write about our Dynamic Price Caps in every blog, every email, and all over our website.  Why?  Because they always deliver good value by setting a cap on how much you’ll pay per gallon:  You win when prices rise, and you win when they fall.  Fixed prices are very risky, because you win when prices rise, but you lose when they fall.  We’ve been offering Dynamic Price Caps for over 20 years, and they always work.

You can Cap next year’s price online any time of any day, any day of the year.  Just go to www.bantamhome.com any time, and click on the orange umbrella.  Or give us a call if you would rather have us do it for you.

You can also sign up online for our Budget Plan, which is designed to take the sting out of big winter deliveries by spreading the cost over 12 months of even payments.

Now that you have a better understanding of the complexity of fuel prices and what you can do about them, grab a sled and enjoy the snow before it’s too late!

Everything you Need for the Prom

Imagine an 18 year-old boy walks in the tuxedo rental store and announces that he needs a tuxedo for his Senior Prom.  The clerk shows him a few tuxedos and the boy selects one in his size.  The clerk charges him a 5-day rental and the boy leaves.

On the night of the prom, the boy realizes he doesn’t have a tuxedo shirt, a bow tie, or black shoes!

This is the way most oil and propane companies work.  You tell us you want automatic home delivery of oil or propane, and we say “OK.”  It isn’t until the night of the prom that you realize your uninsulated attic leaks heat like a sieve, your oil tank is dangerously corroded, and you haven’t had a tune-up in so long your furnace burns fuel like a 1965 Pontiac.

The boy is frustrated:  That guy knew I would need the whole outfit… why didn’t he suggest the shirt, tie, and shoes?  The homeowner is frustrated:  That guy knew I would need more than just fuel… why didn’t he suggest the home energy assessment, the oil tank ultrasound, and the tune-up?

So we made a revolutionary change in the way the customer relationship is structured:  We packaged all the important things a homeowner needs into a single bundle of services we call our Preferred Bundle, and we priced it crazy low.

Need an ultrasound analysis of your basement oil tank?  It’s completely included!  Want a thorough energy assessment of all the ways your house uses and loses energy?  It’s included.  Annual tune-up of your oil, propane, or air conditioning system?  Included.

Not only does the Preferred Bundle include everything a home needs for one very low annual price, but it also gives steep discounts on everything it might need.  Like 20% off any repair bills during the year, 20% off any plumbing work, and 0% financing on major upgrades.

Our Preferred Bundle isn’t a service contract:  It’s a radically different approach to providing the services a home needs.  No more lists of covered parts and a mile of small print to explain what’s not covered.  No more overtime rate for nights and weekends!  This is far more simple, far more inclusive, and it focuses on saving energy and avoiding problems.

Here are a few other “night of the prom” moments we avoid with our Preferred Bundle:  Priority scheduling for service calls and emergencies, full access to your account online, and 12-month budgeting.

You’re going to look really sharp at the Prom, even if your tuxedo is powder blue.

Peter Aziz

Bantam Home & Energy

Bantam Fuel is now Bantam Home & Energy!

Why change the company name?

It was a tough decision because I love the name “Bantam Fuel,” and I love the “B” with the half-leaf-half-flame in it.  The challenge was that people still think of us as only a fuel company, and that’s only a small portion of what we do.  We needed a way to show people there’s much, much more to us than fuel.

We brought in the word “Home” because everything we do is for people’s comfort in their homes.  Air conditioning, humidifiers, plumbing, generators, heated floors, pool heaters, and the list goes on.  Your home is your castle, but it’s also your sacred place and your spa.  We get that.

The word “Energy” encompasses fuel, but it also talks about the energy savings we help with every day:  Home energy assessments (I could go on and on about the very cool MyHomeEnergyReport™ with its colorful graphics and personalized reporting right on your computer…), attic and wall insulation service, tankless on-demand water heaters, and the 90%+ efficiency of propane heating systems.  We love energy efficiency!

The other really neat thing we did with this name change is to create bundles of value, rather than selling services a la carte, but I’m going to put that in my next blog.  We hope you enjoy new name and logo!

Sun Tzu and the Art of the Disaster

2,500 years ago in China, Sun Tzu wrote a book called The Art of War, which is quoted endlessly by people trying to sound smarter than the next guy.  So I read it to find out the secret wisdom of the ages.  It isn’t a very big book, and it talks about exactly the sort of thing you would expect to find in an ancient treatise on how to conduct war:  Strategy, tactics, the importance of terrain, etc.

The reason it is so often quoted, however, is because it is an exceedingly humane discussion, as if we gave the task of war to a think-tank of pacifists and said “If you absolutely had to go to war, how would you do it?”  Sun Tzu’s most famous lesson is that the most glorious victory is the battle avoided altogether.

Which brings us to disasters in the fuel business.  We’ve learned a lot over the years in how to prepare for a disaster.  An untrained regiment of soldiers can be “prepared” by simply bracing for the impact of battle, a sort of psychological preparedness, and many companies and even homeowners take this approach to safety.  “If something bad happens, we stand ready to spring into action and mop up the mess.”

But rather than using the shirt off your back to soak up the spilled fuel, why not have a dedicated spill response kit on each and every vehicle?  This requires a bit of foresight and wisdom, not to mention a significant expense, but we’re getting closer to The Art of the Disaster.

Readers of the local papers learned there was a diesel fuel spill at our Bantam storage facility on January 3^rd.  We were not responsible for the spill, as it was caused by the trucking company who delivers the fuel from New Haven.  The good news is that all the spilled fuel was perfectly captured in our emergency containment system.

Because of a huge capital investment we made a few years ago, we didn’t have to “mop up” at all.  The carefully engineered unloading area was sloped to a drain that conveyed any spilled fuel to a concrete containment area.  Because of that foresight, we didn’t have to clean up the Bantam River, which runs very close by our facility.  This was truly the battle avoided altogether.  The Art of the Disaster.

The most glorious victory of all came this week, as we performed a rather uninteresting task at a customer’s home in Litchfield:  We replaced their basement oil tank, which had not leaked or spilled a single drop.  So why did we replace it?

During a routine, annual Efficiency Tune-Up last month, we used portable ultrasound technology to test the thickness of the steel at the bottom of their tank.  The results told us the steel was very thin from many years of corrosion, and we knew it wouldn’t last much longer, perhaps a few months, or even a year.  But when it let go, it would be a disaster.  The customer was thrilled to know we could avoid the disaster, and we were thrilled to avoid “mopping up” in the middle of the night.

The battle avoided.  The Art of the Disaster.

Fuel companies are not all created equal.  We make a significant commitment to safe equipment, facilities, vehicles and more importantly, safe people, and safe procedures.  Because we know that in the long run customers stick with us when we protect their homes, the environment, other drivers, and much more.  I think Sun Tzu would approve.

Peter on Governor Malloy’s Energy Plan

On Monday night, November 26^th, I attended the Connecticut Department of Energy and Environmental Protection (DEEP) public hearing at the Torrington City Hall. The hearing was held to hear public response to Gov. Malloy’s newly released “Comprehensive Energy Plan” for the state of Connecticut. It’s a plan that I believe is deeply flawed, and I spoke out against it at the hearing.

The most prominent feature of the plan is to convert 300,000 homes and businesses to natural gas, and build 900 miles of new natural gas pipeline in the state.  That means taking away half the customers currently served by heating oil and propane from the locally owned businesses who serve them.

Is this a good idea?  And if so, why?  The DEEP plan is based on the assumption that natural gas prices will remain half the price of heating oil for the next 50 years.  For anyone in the energy business, this is a comically absurd prediction.  For 26 of the last 29 years, oil has been cheaper than natural gas, but the nature of the markets always brings them pretty close:  Whenever one fuel is cheaper, the big industrial users switch, which drives up the price and brings them back into parity.

Even the gas utilities say they cannot predict the future price of gas, and they won’t lock in prices for more than three years.  And even the gas utilities don’t want to invest in expanding natural gas lines to rural areas because they have determined there is no return on their investment.

Did I mention this plan will cost the CT taxpayers $6.8 Billion?

The DEEP plan describes natural gas as an incomparably clean fuel.  It isn’t.  In fact, the leaks around the nation contribute hugely to the greenhouse effect, and methane is 20 times more potent as a greenhouse gas than carbon dioxide, which is the byproduct of oil and propane combustion.

Unfortunately, each speaker at Monday night’s hearing was only given three minutes of time, nowhere near enough to cover these points in depth.  So I focused on the 6,000 working families who would be left out of work by the plan.

DEEP Commissioner Dan Esty stated that there would be more than enough work for these displaced people converting homes and businesses from other fuels to Natural Gas.  I testified that this was a naïve fantasy:  High volume, low cost contractors from out of state would get most of the work.

Our truck drivers, customer service people, and garage mechanics who would be out on the street when 300,000 customers get switched to natural gas at the taxpayer’s expense cannot simply take up work tomorrow as Heating Contractors.  They are going to lose their jobs.  Period.

DEEP and the Governor plan to use taxpayer money to destroy these people’s livelihoods today, for a vague promise of so-called “green” jobs in the future.

I told the panel of “experts” about the real people who live and work in Northwest Connecticut, whom they will be putting out of work.  They have good, full-time jobs with full benefits and retirement plans.  They own their own homes.  They are strong members of their communities – their churches, scout troops, & PTA’s.  And they send their children to college.  They’re proud of what they’ve built with their lives, and we’re all proud of them in turn.

That’s the American Dream.  I told the panel of “experts” the idea that they will all be transformed into heating contractors is a fantasy.  I told them the idea that they will all find “green” jobs is a fantasy.  I assured them, as someone with some familiarity with employment in Litchfield County, that 6,000 good people will lose their jobs if they perpetrate this arrogance on our community.

I’m pretty sure I got their attention.

Safety First

Thinking about safety can be overwhelming.  Each part of the business has its own set of safety issues:  Trucking, pumping fuel, repairing equipment, handling Propane, storing gasoline, working with electricity, and maintaining vehicles.  Beyond those areas, are the concerns for homeowner safety, and environmental safety.  What about the office coffee pot?

While there are specific practices that can be put in place to guard against certain types of risk, the best way to ensure safety is to make sure everyone is on the lookout for anything unsafe.  We try to get our people to look with new eyes on the jobs we’ve always done the same way… if there’s even a hint of concern, let’s discuss it.  If there’s a safer way to do something, let’s do it that way.

Customers can also contribute to a culture of safety.  They can think about their own heating and cooling system, and their fuel storage systems.  Do they have any questions?  If so, let’s send someone to inspect and see if we can do it even more safely.

Safety is thankless, because if we make a preventative change in our procedures or equipment, we’ll never know what disaster we avoided, so no one will ever appreciate the work and foresight.  But we know it’s worth every ounce of work, and every minute of foresight.

Price Caps and Two Kinds of People

The price of heating oil soared past $4 per gallon in the month of February, leaving customers who had Price Caps sitting pretty with lower prices by as much as 40 cents per gallon.  I’ve said this every year since we first offered them in 1992, and I’ll say it again… You can’t lose with a Price Cap:  You’re protected if the price rises, and you get the lower, market price if it falls.  Could it be any more beautiful?

This summer we finally get to test the old saying that there are two kinds of people.  In this case, it’s those who prefer to do business by speaking with a live person, and those who prefer to do it on the computer, with none of that annoying human contact.  That’s because customers can (finally!) opt for a Price Cap online through our web site.

Online access is truly identical to the experience customers had before, except they don’t have to interrupt their work day to make a phone call, and the agreement is made instantly, with no paperwork to arrive in the mail.  Oh, and no human contact.

For us, this is a mixed blessing.  I’ll miss the great discussions we get into about why the price is high (or low, like this year), but we always welcome those chats even if customers don’t need us on the phone to secure a Cap.  On the other hand, we know we will be offering true 24 Hour Customer Service, as opposed to a mere 40 hours a week.

I suspect there are really three kinds of people, including a middle group who engage in some transactions over the phone, but would like to speak with a real person for other business.  I bet the typical, computer savvy customer would go online to check her account balance or make a payment, for example, but would rather speak to one of us on the phone to arrange for an Efficiency Tune-Up (even though that can also be done online).

What about setting up Budget Plans, or getting Service Plan coverage?  We’ll see… it will be an experiment in human behavior, carefully monitored by the researchers at Bantam University!

Bantam BioHeat has saved Litchfield County 13 Million Pounds of CO2 to date!

Can it be that much already?  You bet.  Every gallon of “Heating Oil” we have sold since October, 2006 has been Bantam BioHeat, a blend of 5% biodiesel and 95% heating oil.  Time flies when you’re saving the planet!

According to the best science done by the National Biodiesel Board, each gallon of 5% BioHeat saves .806 pounds of Carbon Dioxide when it displaces a gallon of traditional heating oil.  For a typical house burning 1,000 gallons of oil each year, that’s an annual savings of over 800 pounds of CO2… good for you!

The calculation is done by analyzing the chemical formula for the combustion of oil vs. biodiesel, and combing that savings with the “lifecycle” savings of biodiesel.

“Lifecycle Analysis” is the study of a product from cradle-to-grave, to determine its true cost, or its true environmental impact.  All plant life absorbs CO2 while it’s growing, and this is true for the plants that are used in biodiesel production:  Soy, Rapeseed, Sunflower, etc.  The process of harvesting the crops and converting them to biodiesel also takes much less fuel than the process of exploring, drilling, and refining oil.  All told, this yields a 78% CO2 emissions reduction compared with oil.

The combustion analysis hinges on the fact that almost all the material in the exhaust of any furnace is Carbon Dioxide and Water—what remains is only a very small fraction of the gases going up the chimney (less than 2/100ths of one percent).

Why are Prices Rising in a Warm Winter?

Let’s keep this short:  One of the warmest New England winters ever recorded means that demand should be low.  Low demand should mean high supply, which in turn should mean low prices (remember that Supply and Demand graph you had to stare at for an entire semester of Economics 101?).  So why are prices high… higher than we’ve seen in four years?

There are four answers.  First, a warm New England winter does not mean a warm global winter, so we have to look at the demand for heating oil around the planet, not just here.  But isn’t the entire planet warming up?  Um… no.  Even the “warmists” have changed their alarm to “Climate Change” because they can’t prove that the planet is warming.

This winter is a case in point.  New England is experiencing a really warm winter, while Europe is experience record cold.  You know those romantic gondolas on the canals in Venice?  Here’s what the canals look like this winter:

Where are the handsome young Gondoliers in their horizontal striped shirts with their bare arms?  We use less oil in New England, but they use more oil in Europe, and the average demand is about the same.

The second reason is that heating oil and diesel fuel are essentially the same product.  So when demand for diesel is high, the price for heating oil goes up.  Is the demand for diesel high right now?  Not in the US, which is in the fourth year of recession, but it is booming in Asia, which is the largest diesel consuming region in the world.  So again, even though US demand is low, global demand is up.

The Thanksgiving Price Tumble or The Brilliant Clarity of the Rearview Mirror

On November 17^th, one week before Thanksgiving, the heating oil market took a sharp dive.  It was only down five cents per gallon, but that was a definite reversal of the upward trend we had been experiencing for the previous 45 days.  Over the next week, the market tumbled a total of 24 cents, bringing lower retail prices with it.

But look again at that chart.  It’s a six month chart, and it shows that oil has gone (and let’s count…) Up, Down, Up, Down, Up, Down, Up, and finally Down again.  Wasn’t that fun?

Why has the price fallen so fast?  There are four domino’s to this one.