Nov. 26 (Bloomberg) -- Max Hartshorne was thrilled to lock in a winter’s worth of heating oil at $4.09 a gallon.

That was in July. Now heating oil is $2.75 a gallon and Hartshorne can’t break his contract with the dealer.

“I was just so angry,” said Hartshorne, 50, who uses about 900 gallons of oil to warm his home in South Deerfield, Massachusetts, each winter. “I said, ‘You guys can’t be serious about $4.09 a gallon.’ And he said to me, ‘We’re deadly serious.’”

Buyer’s remorse is afflicting tens of thousands of customers in New England, where heating oil is used more than in any other U.S. region. Their eagerness to nail down a guaranteed rate backfired when oil prices fell.

“There was a belief that heating oil could rise to $6 or $7 a gallon,” based partly on predictions by Goldman Sachs Group Inc. and billionaire oilman T. Boone Pickens, said Matt Cota, executive director of the 120-member Vermont Fuel Dealers Association in Montpelier.

“Some dealers had lines out the door,” Cota said. “People were coming in with their checkbooks to sign contracts. There was a palpable panic in the cold-weather states.”

Goldman analysts forecast Aug. 15 that crude oil would trade above $145 a barrel by mid-November. Pickens said Aug. 19 that oil was unlikely to fall below $100 a barrel. Crude for January delivery closed at $50.77 yesterday on the New York Mercantile Exchange.

Hay Rosser, a spokesman for BP Capital LLC, said in an e-mail that Pickens wasn’t immediately available to comment. Goldman Sachs oil analysts also weren’t available, said Fiona Laffan, a company spokeswoman.

‘Got Suckered’

“In hindsight, we got suckered,” said Terry Moran, 59, owner of Hugh Duffy Coal & Oil Co. in Rutland, Vermont.

Forty-four percent of the 5.5 million households in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont use heating oil, according to government statistics.

Connecticut alone has 682,000 oil customers, with about 112,000, or 16 percent, locked into a price, according to the Independent Connecticut Petroleum Association in Cromwell.

Fixed-price contracts establish a price for the entire season, while capped contracts set a ceiling. Both have been offered since the 1980s and are used in New York, New Jersey, Pennsylvania, Virginia, Maryland and Delaware as well as New England, said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut.

Pat Boucher, who helps her father run Dunn Oil Co. in Maynard, Massachusetts, said she’s fielding as many as 10 complaints a day.

Not So Smart

“If oil were at $6 a gallon now, our customers would have thought they were real smart,” said Boucher, 50. “They don’t think they’re real dumb now: They think they’re being ripped off.”

Springfield, Vermont‘s town manager, Robert Forguites, bought 250,000 gallons of heating oil at a little more than $4 for the public school system. He could have saved several hundred thousand dollars for the community of 9,000 people if he had bought at today’s price.

“I am angry at myself,” Forguites said.

Oil retailers say they’re in the same bind.

“We feel your pain, as we are feeling it too,” Dunn Oil tells customers on its Web site. The company is locked into unfavorable rates with its own suppliers.

“We’re stuck just like they’re stuck,” Boucher said.

Access to Credit

Dealers are further hurt by the freeze in credit markets, said Eugene Guilford Jr., executive director of the Connecticut trade group. In the past, dealers obtained loans to ease cash flow after paying their suppliers and waiting for payment by customers.

Guilford met with Treasury officials in Washington last week on behalf of nine New England heating oil trade groups. The dealers are submitting a list of local banks that have denied them loans, asking the government to intercede.

“We’re not looking for a bailout,” Guilford said. “These are loans.”

Long-Term Savings

For consumers, fixed-price contracts generally save money over the long term, dealers said.

“Anyone who has done a pre-buy for the last 19 years is far ahead of the game financially,” Moran said. “Even if they pay two bucks more a gallon this year.”

Most customers don’t buy insurance guarding against an oil-price decline because it can cost 20 cents to 50 cents a gallon, said Jamie Py, president of the 220-member Maine Oil Dealers Association in Brunswick.

Some fixed-price customers are cheating on their contracts by purchasing cheaper oil from another dealer, Guilford said. Others are burning more wood in the fireplace or stove to offset the use of furnace oil, said David Young, town coordinator for Warwick, Massachusetts.

The terms and language of fixed-price contracts vary, Py said. Most allow the dealer to recover expenses from customers who renege or don’t take the entire amount of oil.

“No one wants to take a customer to court,” Py said.

Some customers acknowledge that they made a bad decision and accept the consequences.

“You make the deal and you stick by it,” said Ted Cady, 69, of Warwick, who locked in a price of $4.99 a gallon in June. “And sometimes that sucks.”

Peter Geiger, editor of the 191-year-old Farmers’ Almanac in Lewiston, Maine, said he pre-bought heating oil at $4.12 a gallon. It’s a double whammy, based on the publication’s winter weather forecast, he said.

“Snow in November, snow in April and snow in between,” he said. “Winter, winter, winter. And numbingly cold.”

To contact the reporters on this story: Tom Moroney in Boston at tmorrone@bloomberg.net. Brian K. Sullivan in Boston at bsullivan10@bloomberg.net.

Last Updated: November 26, 2008 00:02 EST