Reasons Why Actual Propane Gas Prices Can Rise

Propane prices are on the rise again, but what causes this? Is it as simple as cold weather or are there other factors affecting actual propane gas prices?

Propane is a very versatile fuel. Many people are used to using it as their fuel of choice for summer barbeques, while others use it primarily as a source for heating their homes.

So what influences current propane prices per gallon? There are many factors involved. Reasons range from weather to transportation costs to competing with other fuels.

Let’s start at the beginning with propane. Propane is produced from natural gas processing and crude oil refining. This will cause propane prices to track the prices of those 2 fuels. Propane generally follows the price of crude oil more so than natural gas.

The reason for this is that crude oil and propane tend to compete with each other in many sectors.

Good old basic supply and demand will determine prices. Prices will rise and fall depending on the amount of propane available and the current demand for it.

Propane gas is produce all year long as a by-product of crude oil and natural gas production. Residential demand for propane usually peaks during the winter heating season.

Since it is produced year round, typically propane inventories will build up during the summer months and then be drawn down going into winter season when demand increases. If propane inventories are low at the start of the heating season, then propane prices will rise due to low supply and high demand. This will cause extra pressure on rising prices because you can’t just go out and drill for propane. Propane would then have to be imported will takes time to reach the markets here.

If there is an early cold snap in the fall, this will deplete propane stick early and then the market may be playing catch up to demand all winter long thereby increasing prices.

Most of the propane supply in the United States is centered in Texas and the Midwest states. Transportation costs will increase your propane prices the further you are away from the central market.

The residential market is not the only market that propane gas serves. The petrochemical market makes up about half of the total demand for propane in the U.S. Fortunately this market is flexible in the fuel it can use. Petrochemical companies can either propane during the summer months when it is typically cheaper. They can also switch over to natural gas and/or crude oil if the price of propane becomes uneconomical for companies to use.

Now you know some of the reasons why actual propane gas prices can rise.