What Affects Propane Prices?

Posted by ThompsonGas on July 14th, 2014

Propane prices can be affected by various factors. In most cases, rates are affected based on the current prices of crude oil and natural gas. These are the raw materials used in the original production of propane. It comes as a by-product during the process of recovering crude oil and natural gas. Propane is used to power vehicles as well to provide heat to homes and businesses during winter months. It is also used for things such as fueling your home heating appliances such as barbecue grills and fireplaces as well as in the petrochemical industry.

In addition, propane is also used in the drying of corn and other grains following a harvesting period, to reduce moisture content. Propane is not drilled or recovered on its own but is also produced alongside similar hydrocarbon fuels. For this reason propane prices tend to follow the price movement of crude oil prices, competing with other similar crude oil-based fuels.

The other factor that affects the prices of propane is the supply-demand curve. Just like any other commodity, the supply of propane depends on production, weather and of course, inventory. The production of propane is not seasonal; it is produced all year round, however demand is seasonal. During natural calamities such as hurricanes and flooding, not only does the production of natural gas and crude oil slow, so will propane production.

The supply-demand curve is also very dependent on the climate. During the summer season, the demand for propane from residential users is very low. The greatest percentage of propane demand is during the winter months. In winter, home propane tends to increase. Getting access to cheap propane therefore is relatively easy. If in any case there is a bad summer in which inventory is low, then supplies may be limited for the following winter. If this is aggravated by colder than normal winter conditions, there is a potential for the price of propane to increase.

Transportation costs are also a factor also affecting propane pricing. Cheap propane is very common in the Gulf Coast and the Midwest as transportation costs in these areas are very low.

Petrochemical markets that use propane, however, are the least affected by fluctuations in propane prices as they are able to choose what fuels to use based on market price. They can easily change between fuel sources depending on which is more affordable at any given time.

Agriculture trends are also as a factor regarding propane pricing. A high demand for propane during the harvest seasons may occur if propane is needed to dry crops or seeds.

About the Author:

This article was written by John Spare, Communications Specialist for ThompsonGas. The 16^th largest retail propane company in the U.S., ThompsonGas has been family owned and operated since 1946. The propane gas dealer provides cheap propane for residential and commercial propane gas service to customers across 10 states in the East and Southeast.