If you heat your home with oil it's not necessary to sign a heating oil contract but for some homeowners it makes sense. They like to feel protected from price hikes and usually will benefit by getting a service plan or other incentives.

There are essentially two different types of heating oil contracts that you will need to consider: 1) Fixed-Price option and 2) Capped-Price Option.

Increasingly, many consumers are opting not to sign any contract at all which means that they will simply pay the variable (or C.O.D.) price which is the market price at the time they need more oil. Some dealers will try to get you to "sign-up" for a variable option but this usually is nothing more than agreeing to buy at the prevailing market price of the day.

There is little benefit for the homeowner to enter into a legal, written contract to buy at the daily price as they better off being able to shop around for the best deal when it is time for a delivery.

For those that choose to sign either a fixed price or capped-price contract here's an overview of each

Fixed-Price Contracts
Typically, in a “fixed price contract,” you agree to pay a fixed price per gallon of oil for the winter season. With a fixed price contract, the price you pay does not change, even if the “market” price for fuel goes up or down. Before heating oil prices were as volatile as they are now many homeowners would start fall out by signing fixed-price contract. This allowed dealers to pre-buy gallons at a profitable price because they had essentially pre-sold the fuel oil to customers at an agreed upon price. Because the price that consumers paid was usually below the spot price both the dealer and the homeowner thought they were getting a good deal.

But the winter of 2008 brought a change because during the preceding year energy prices kept climbing and climbing. Before the heating season 'heated up' lots of customers jumped on the locked-in price deals. But then a mid-winter drastic drop in prices caused thousands of customers to cry foul and blame the supplier for overcharging them even though it was a price they agreed to. Many oil companies went out of business and many others stopped offering price lock contracts.

While some larger dealers continue to offer price-lock programs many dealer are not offering fixed price programs. The difficulty with these contracts is that it assumes that customers (and dealers) can know what the price of heating oil is going to be though the winter months. Today's energy markets may simply be too complex and volatile know that with any certainty.

Capped-Price Contract
A capped-price contract puts a ceiling on the top price per gallon that you will pay during the contract’s term, while allowing you to pay a lower price per gallon when market prices drop below the cap price.

If you sign this contract you will need to keep an eye on both the market and your invoices to make sure that you never pay more than the agreed upon capped price. If the market prices are below the capped price in the contract then you should be paying the lower price. Some homeowners find that they are charged to capped price in the contract even when the market price is lower. If you find this happening to you then you should contact the dealer immediately and consider contacting your state's department of consumer affairs and/or Attorney General's office

If you so sign either a fixed price or capped price contract you should make sure that the following is made clear to you:

• Exactly what the contract start and end dates are
• What penalties apply if you should have to cancel the agreement before its end date
• Are there any fees or pre-payments required to participate in the program
• How the dealer has ensured that its oil inventory will be sufficient to cover the contract
• What happens if either party defaults from the contract

Budget Contracts
Finally your dealer may try to also get you to sign up for a budget program. A budget contract is an agreement for you to pay a fixed monthly payment over a set period of time which is usually 12 months. You pay the same amount each month regardless of the amount of oil that you use over the contract period. A budget program doesn't really address the price per gallon that you will pay as it can be paired with either a fixed or a capped price plan or with no price plan at all. At the end of the budget period you may have used less fuel than you paid for on which case you will receive a refund from your dealer. If you have used more fuel that budgeted for then you will owe the dealer the balance.