Buyers Betting Energy Prices Have Bottomed Out
The first thing Bill Dozois, president of Radio Oil Co. Inc. in Worcester, will tell you about oil prices is that they’re unpredictable.
“Anyone who tells you what’s going to happen a month from now, never mind two days from now, ought to be locked up or something,” he said. “There’s no way of knowing.”
But that doesn’t mean Dozois doesn’t try. He says he checks on the commodities markets several times a day, trying to determine the right moment to buy a future contract so he can lock in a price for his customers.
The factors that determine the prices of oil, natural gas and electricity are numerous — the amount of economic growth in the United States and abroad, how cold the winter is, whether there are severe hurricanes in the Gulf of Mexico, even how much money the government prints. But for the most part, people in the Central Massachusetts energy industry agree that customers are happy with how low prices are right now and eager to lock in for as long as they can.
In For The Long Haul
Radio Oil sells heating oil to Worcester County households and businesses in two ways — allowing them to lock in a price in the late summer or fall, or letting prices follow the market. Dozois said many of his customers this year gladly locked in prices in the mid- to high- $2-per-gallon range.
For an extra up-front fee, Radio Oil’s fixed-price customers can get out of their contracts and pay market rates if prices drop over the winter. Dozois said that option has never attracted more than 10 percent of his customers, and this year it was more like 5 percent.
“A few years ago, prices were $4 a gallon,” he said. “I think people are figuring mid- to high- $2 probably isn’t that bad.”
Blair Roberge, president of Absolute Energy Services LLC in Groton, said he’s seeing the same thing with his customers. In fact, a big selling point for Absolute Energy, as a natural gas broker, is that it can sell longer-term contracts than the local utility company.
“Most people that we’re dealing with now are usually signing up for a two-year or three-year contract,” he said. “People are trying to lock up supply for as long as possible.”
Roberge said energy companies charge a premium for the longer-term contracts, but that doesn’t dissuade customers.
“They think it’s worthwhile to take that gamble,” he said.
Forewarned Is Forearmed
Roberge said his customers’ preference for longer-term contracts isn’t just a matter of betting on higher prices in the future. He said many of them are businesses that want to know what their costs will be so they can draw up budgets and set their prices accordingly.
Richard Domaleski, CEO of World Energy Solutions Inc., the Worcester-based company that facilitates the buying and selling of energy, said he also sees a preference for long-term contracts among energy buyers.
Domaleski said demand for natural gas, and for electricity, which is closely tied to natural gas, fell in 2008. He said that’s just one of four times that’s happened in the past 54 years.
“That stabilized,” Domaleski said. “But we don’t see a lot of growth in the U.S. in the next 12 months as far as demand for electricity.”
Domaleski said there’s plenty of natural gas available in Marcellus Shale in Pennsylvania, meaning prices probably won’t shoot up in the next year. But he said energy customers “pretty consistently” feel that natural gas and electricity prices are at a 10-year low with nowhere to go but up.
Sell Side
Sellers seem to agree. World energy’s commercial and government clients want to buy long-term contracts. But sellers are pricing short-term contracts more aggressively.
For oil prices, Domaleski said things are a bit more complicated since oil is traded worldwide rather than mostly within the domestic market. But he said many of the same factors affect the prices of all kinds of energy.
Natural disasters or political events could disrupt the flow of energy. And, if the federal government decides to print more money to keep the economy going, it will push investors to commodities like gas and oil, driving prices up.
Dozois said he sees that kind of speculation making things harder for his customers. As much as ordinary buyers may try to follow the markets, he said, by the time financial TV shows are reporting an event it’s probably already out of date.
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