What Influences Propane Price?
Crude Oil and Natural Gas Prices
Propane is a by-product of both natural gas and petroleum and its price is based on the going rate for both.
Colder-than-normal weather can put extra pressure on propane prices during the high demand winter season because there are no readily available sources of increased supply except for imports. And imports may take several weeks to arrive, during which time larger-than-normal withdrawals from inventories may occur, sending prices upward. Cold weather early in the heating season can cause higher prices sooner rather than later, since early inventory withdrawals affect supply availability for the rest of the winter.
Proximity of Supply
There are three supply points in the propane distribution chain:
- The consumer tank - A larger consumer tank will allow the consumer to last through supply shortages.
- The supplier storage - A larger supplier storage will allow for more deliveries to the consumers before resupply is required.
- Wholesaler storage - Suppliers who receive resupply from hundreds of miles away are subject to transportation and logistical restrictions & problems.
Propane demand comes from several different markets that exhibit distinct patterns in response to the seasons and other influences. Residential demand, for instance, depends on the weather, so prices tend to rise in the winter.
The petrochemical sector is more flexible in its need for propane and tends to buy it during the spring and summer, when prices decline. If producers of petrochemicals should have to depart from this pattern for some reason, the coinciding demand could raise prices. And when prices rise unexpectedly, as they do sometimes in the winter, petrochemical producers pull back, helping to ease prices.
Prices could also be driven up if agricultural sector demand for propane to dry crops remains high late into the fall, when residential demand begins to rise.
- Crude Oil & Natural Gas base price
- Supply & Demand balance
- Proximity (and amount) of supply
- Other markets influencing demand