Distributors Feel The Heat Of Oil Price Jump

Steve Kuno faces a volatile heating oil market this winter. i

Distributor Steve Kuno faces a volatile heating oil market this winter. David Sommerstein for NPR hide caption

itoggle caption David Sommerstein for NPR
Steve Kuno faces a volatile heating oil market this winter.

Distributor Steve Kuno faces a volatile heating oil market this winter.

David Sommerstein for NPR

Part 1 Of This Report

With heating oil prices projected to possibly double what they were last year, homeowners in the Northeast are bracing for a budget-stretching winter. So are the people who deliver the oil. Most are small-business owners caught in the middle between global oil traders and anxious customers.

They're known as "fuel jobbers," mom-and-pop businesses that deliver oil, propane and kerosene with just a few trucks.

Steve Kuno, a distributor in northern New York state, was a linebacker in college, and at 47, he looks like he still could be. After graduation, a family friend got him work with a fuel jobber and he never looked back. He founded Kuno Oil Co., or Kunoco, in the late 1980s.

Kunoco's "world headquarters," as Kuno likes to say, is a little concrete bunker on the outskirts of the village of Canton, N.Y.

A receptionist, Terry Hamilton, says many of Kunoco's 2,000 or so customers are already calling about the price of heating oil.

How High Will Prices Go?

"They're scared," Hamilton says. "They want to know how high it's gonna get because they're hearing a lot of things. People are talking outrageous numbers, and they want to know if it's true."

The prices are hard for Kuno to believe, too.

"In the early days of my career, if a price moved half a cent or penny on a day, that would be probably a lot," he says.

These days, the wholesale price can swing 15 to 20 cents in a day. Unlike electricity or natural gas, heating oil isn't regulated.

So Kuno uses daily faxed price quotes and glances at the oil markets to make a huge decision: when to buy a tanker of oil worth up to $50,000. While his customers expect grace periods and budgeting programs to make their payments, Kuno has 10 days to pay his suppliers — no exceptions.

"If you're within terms, you can pick up oil, and if you're not, you can pound salt," he says. "And that's just the way it is. I hope we never get to that point and have to deal with our customers that way, but that's the way it is on the other side of our business."

Small Business, Big Gamble

As the price of oil climbs, Kuno also is squeezing his profit margin to keep his price in line with his competitors. This is why oil distributors across the country are teetering on the edge. The government is offering more federal loans to help small distributors stay afloat.

Of the 8,000 heating oil dealers nationwide, almost all are small businesses like Kunoco. Mike SanGiovanni edits the Oilheating Journal. He says the price volatility makes them vulnerable this winter.

"They may be buying oil at a higher price than they can sell it for or, more likely, the customer simply can't afford to buy it," SanGiovanni says. "So now they have oil they have to pay for and they can't get rid of."

Some dealers in the Northeast went belly up last winter. If more follow, they'll leave customers — some with pre-paid contracts — literally in the cold.

Bill Howard, one of Kunoco's customers, says he trusts the company and doesn't blame it for the high prices.

"No, it's not the oil company's fault," Howard says. "It's the ... refineries."

Kuno says, "I think that they understand that we're the middleman in this."

Placing Blame

There are lots of targets to blame for high oil prices, Kuno says. He fingers oil speculators. Meanwhile, he says he's already looking beyond oil.

"We have probably another 10 to 20 years at least of life as we know it in the fuel business," he says.

Kuno starts talking about hydrogen and biofuels. He already owns five convenience stores and a food prep business because they bring in non-oil money. So Kuno is confident. He says diversifying will be the best way to ride out the winter.

David Sommerstein is a reporter for North Country Public Radio.

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