Calling for an oil delivery these days can make one cringe.
But homeowners are not the only ones who detest soaring oil prices, said John Babb, president of Manchester-based J&S Oil. Volatility, especially, and the rising cost of oil in general, has forced a number of dealers out of the industry.
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“Volatility is a scary thing,” Babb said. “There are nights I don’t sleep very well.”
Oil dealers, by law, have to cover 75 percent of the oil they agree to sell either by pre-buying it or with a bond. The law, intended to protect consumers, is designed to make sure dealers can deliver the oil they sell at the agreed-upon price.
Because the price of oil has been so volatile, dealers are left trying to guess what oil prices will do. So they lock in prices that are neither too high nor too low.
Too low, and companies wind up buying more than they have agreed to sell. Too high, and companies likely will wind up selling it for more than they bought it.
Babb said 2008 was “a terrible year for that.” That year, J&S had to purchase oil at high prices, as it neared $4 per gallon, to cover its pre-buy agreements. A short time later, however, prices fell and customers who had locked in started calling Babb to cancel their agreement.
“We could either agree to a lower price, which meant we were actually losing money, and keep the customer or take them to court to uphold the agreement,” he said. “Taking them to court you not only lose the customer, but it is impractical when it is scores of accounts.”
The result was a number of small dealers that were unable to absorb the loss and were forced out of business.
“A lot of these guys threw in the towel,” Babb said.
He spends considerable time studying the markets and trends trying to purchase oil at its lowest mark so he can set a price that will be attractive to customers and profitable for the company.
“We’re starting as early as February each year for the next year,” Babb said. “Trying to find the low point on fuel is like throwing a dart in the dark and trying to hit the bulls eye. You’re rarely going to do it, but you hope you come close.”
Rising oil prices have forced homeowners to improve their efficiencies. The same has been true at J&S.
“We’ve asked our employees to be more proficient,” he said. “They’ve come through with flying colors. I have the best employees in the state.”
Babb has responded to oil price volatility by trying to create sales certainty. The company pushes pre-buy programs more than ever before, but volatility has changed the way the J&S handles those programs.
“You used to go on a handshake,” Babb said. “Now, it has to be more solid.”
Craig Crosby — 621-5642
ccrosby@centralmaine.com
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