Oil dealers in the US are not obtaining the letters of credit (L/Cs) or other guarantees now required by law if they sign pre-buy contracts with customers placing forward orders for heating oil.

Officials are concerned that volatile energy prices and the credit squeeze will force oil dealers into bankruptcy - and leaving customers who pre-buy heating oil with no refunds because the dealers have not arranged sufficient guarantees should they fail to deliver.

Check companies

The Attorney General's Office in Maine is advising heating oil customers who sign pre-buy contracts with dealers to check up on the companies to reduce their risk of losing money.

"Ask them to explain how they're going to get oil for the winter," said Linda Conti, an assistant attorney general. "We want people to ask questions," she added.

Previous losses

Eight years ago, thousands of people in New Hampshire and Maine who prepaid J L Oliver Enterprises when it offered cheap heating oil lost money when the firm closed after it could not afford to buy the oil.

More Maine residents finished up without oil or the money they paid for it when Oakland-based Petroleum Products Cooperative declared bankruptcy around two years ago.

Remedies

The Oakland incident prompted the authorities in Maine to tighten its regulations. Dealers may not now offer pre-buy contracts for oil, kerosene or propane unless they have obtained financial protection, which could include an L/C or a surety bond or contracts with wholesalers that guarantee the ability to buy 75 per cent of the gallons needed for customers at a fixed price.

This is not happening according to Conti, whose comments came in the wake of the collapse of another company, Veilleux Oil & Services Inc, which is charged with accepting customers' money for pre-buy contracts but failed to deliver the oil.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.