What Determines The Price Of Propane?
Propane is an important fuel for residential, commercial, and industrial applications. It may be used for cooking space heating, water heating, vehicles, and heavy machinery. People are sensitive about its price fluctuations because it affects their budget. It goes up and down at various points throughout the year. Propane prices may seem random but there are actually several market forces influencing these movements. By learning about these, one can understand the valuation at any point in time. It will also be possible to predict cyclic movements and make sensible purchasing decisions.
What Influences Propane Prices?
Contents
Below are the biggest determinants for the price of propane:
1. Global Crude Oil Supply
Crude oil is a fossil fuel. It forms from the remains of dead organisms from millions of years ago. The liquid exists in large underground reservoirs that companies dig up all over the world. Large amounts of crude oil are refined to produce different products including propane and other petroleum-based products. When the supply of crude oil is low, the amount of propane production is also low. This results in price increases if the demand stays the same. Geopolitical events involving oil-producing countries have a major impact on the crude oil supply.
2. Local Propane Production Volume
Refineries are spread across the country. Their volume of production affects the price of propane. The same can be said of the inventory level. The good news for consumers is that the vast majority of US propane consumption comes from local sources. As long as there is enough inventory to last for a prolonged period, the price should remain steady. Every region has a detailed inventory tracking system that monitors local supply and demand. The data allows the major players to make adjustments as necessary, including the importation of propane to offset any shortage.
3. Propane Distribution Cost
The cost of distribution will depend on the distance from the terminals to the consumers. In some cases, propane will have to be transported for hundreds of miles until it reaches the destination. That’s why there are regions with higher prices than others. Much of the distribution points are scattered across the Midwest and the Gulf Coast. Those who live far away from these centers can expect to pay more while locals enjoy lower rates. This also explains why propane cooking is more popular in the Midwest than it is further out. People will use whatever is most practical in their location.
4. Crude Oil Price
If the crude oil price is high, then local producers might hold off on acquiring more volume until the market stabilizes. However, sometimes this inflated price stays for a long time. Refineries will just put up with it to maintain decent inventory levels. High crude oil prices will be passed on to the consumers so that the producers can recoup their expenses. The historical charts of propane prices and crude oil prices show a tight correlation.
5. Weather & Propane Use
In the winter, the temperature gets so low that it can get uncomfortable even in our own homes. Households may depend on propane for space and water heating. The demand can be even higher than usual with odd weather conditions. Propane producers may increase their inventory leading up to winter in anticipation of this demand but their forecast may prove inadequate. If the shortage is small, then they can increase production to keep up. If the shortage is big, then they might have to import propane which could take a while to ship. Propane prices will remain high until supply and demand are balanced.
5. Consumer Need
Consumer activity varies with time. During the summer, more households cook with the backyard grill, more people drive around for outdoor activities, more heavy machines are used for construction, and more farms utilize their equipment for harvest. Many of these will use propane so the demand increases dramatically. According to economic theory, prices rise when demand rise and the supply stays the same. Since winter and summer are generally the periods of high propane use, the shoulder seasons of spring and fall tend to provide lower prices.
Final Words
People can set their propane budget for the next year by checking their previous consumption data and current price forecasts. Of course, the price can take surprising turns as has happened in the past so do keep this in mind. If you would like to have more certainty, then you can negotiate a contract with an automatic propane delivery service. The price can be locked for the full year so you no longer have to stress about market fluctuations.
Call Wilcox Energy For Superior Propane Service
When you need an excellent propane delivery service in the southern shoreline of Connecticut, be sure to contact Wilcox Energy. We offer high-quality fuel deliveries that are fast, affordable, and friendly.
You can count on us to provide you with unbeatable service each and every time. Give us a call today to discuss our different delivery plans and financing options.
We also offer a full line of HVAC services to enhance your home’s comfort, indoor air quality, and energy efficiency. Some of the services that we offer include heating and cooling tune-ups, repairs, installations, and much, much more. Call Wilcox Energy now!
For more information about our propane deliveries and HVAC services, be sure to contact Wilcox Energy. You can click here to contact us, or you can call us at (860) 399-6218 to find out more. We offer a full line of heating and cooling repairs, maintenance services, and installations.