Thursday, September 13, 2012

Propane Prices. What Affects Them?

Propane prices can fluctuate quite a bit. This article will discuss the basic reasons why propane gas prices move and what to look for to anticipate price moves.

Propane prices change based on several factors. It can be influenced by the simple supply and demand of fueling barbecue grills, producing petrochemicals and using propane for transportation fuel. Prices are depend on the distance propane has to travel to your market, the amount used by a customer and competing fuels.

Factors that influence propane prices:

Crude oil and Natural gas prices. Propane gas is a by-product of crude oil refining and natural gas processing. Propane prices generally mirror the price movement of crude oil, since it mostly competes with crude oil based fuels.

Basic supply and demand.

While propane production is not seasonal, the demand for it is. There is usually a build up of inventories during the summer months when demand is low. Depending on the winter weather, inventories can be drawn down to meet the heating demands of winter. If it is a very cold winter, it can put a huge demand on supplies and will having to import supplies. Importing propane from foreign sources can take several weeks

Location of supply.

Most propane is produced in the Midwest, hence making current propane prices higher on both coasts due to shipping. There are no propane pipelines to ship propane to various states like you can with crude oil. So to the further propane needs to be shipped, the more expensive it will be.

Markets that need propane.

Demand for propane comes from the residential markets (heating, and such) and the commercial sectors which need propane to produce petrochemicals and the agricultural sector uses propane to dry harvested crops. The commercial sector has a little more flexibility in whether to use propane or other fuels. In the winter, residential propane use increases. The commercial sector anticipates that every year and is positioned to use an alternative fuel so as not to compete for propane.

Now you have a quick look as to why propane prices fluctuate.