If you’re using propane for heating your home, you must understand a whole bunch of things about it. Now one of the most important information you have to know is the factors that affect propane delivery prices. Of course, you want this information for the simple reason of being able to anticipate it right before the cold season begins.
The thing is propane prices are always at the mercy of a few influencing factors, but some of these factors may actually be common to all kinds of petroleum products. There are also other which are unique to propane.
Since this type of heating fuel source is convenient to transport, it has the ability to serve different markets. For instance, it can be used for fueling barbecue grills, heating a home, and producing petrochemicals. Now the price of it in the different markets are influenced by stuff like prices of competing fuels in particular markets, volumes used or consumption of consumers, and the distance that propane needs to travel in order to reach a customer.
1. Crude Oil and Natural Gas Prices – Even though propane is produced from refining both crude oil and natural gas, the price of it is more dependent on the cost of crude oil. The reason for this is because propane as a commodity actually competes more directly with fuels based on crude oil.
2. Supply and Demand – Also, the supply and demand for propane is highly dependent to the changes in the domestic production, as well as inventory levels and weather conditions. Although the production is not based on a specific season, the residential demand is quite the opposite because it is highly seasonal. Because of this unbalanced relationship, inventories are built up during the summer season, considering that the consumption is lower. On the other hand, inventories are to be drawn down during the winter season when the consumption increases. So when the propane inventories are low during the start of the new winter season, it usually means that there will be a significant increase in the price of propane.
3. Abnormal Weather – To add, crazy weather will definitely put a lot of pressure on the propane delivery prices during the winter when there’s high demand. What happens is that there will be no readily available sources. This is why some propane delivery companies will be purchasing the more expensive imported propane.
4. Supply Proximity – Finally, transportation costs contribute big time in terms of getting the right prices. Because of huge transportation costs, most homeowners and other consumers living far from the supply will be expected to pay higher prices for the propane they need.
To conclude, anyone who uses propane for heating and other purposes should expect that the prices occasionally spike. The main cause of this is the challenge in logistics, specifically in obtaining resupply during the peak heating season. And because of the fact that the production is steady all year round, it is expected that there is no immediate available resupply or gradual production the moment the available supply becomes low or depleted.