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Understanding Propane Price Changes

Written By: on April 11, 2022

Why is Propane More Expensive than Seasons Past?

propane costs arizonaWhile dealing with higher propane prices can be frustrating and downright painful at times, try to take comfort in the fact that propane remains one of the most cost-efficient ways to heat your home and fuel your appliances. Propane does all this while reducing carbon emissions at the same time.

Plus, historical trends have shown us that, when it comes to prices, what goes up must come down. It’s just a matter of when. For all of us, the feeling is, the sooner the better.

Propane Price Swings Are More Moderate than That of Heating Oil

You may have noticed price swing trends with propane tend to be more moderate compared to heating oil, gasoline, and other fuels derived from a barrel of crude oil.

This is because propane is a completely domestic form of energy.  The U.S. exports about twice as much propane to the rest of the world than we use in our own country. 

Even though propane is still priced in the world market like oil is, this abundance of domestic North American supply gives us supply security and helps moderate the pricing in the U.S. 

In contrast, crude oil, while we produce a lot of it here, is still an imported product.

Supply and Demand

The combination of high demand and lower-than-average inventory is always a common driver for higher propane prices. While you may just think of propane demand for home heating and appliance use, it goes well beyond that.

As an example, global demand for propane has risen because of its increased use as a petrochemical feedstock, the vast majority of which are derived from crude oil and natural gas. These petrochemicals serve as the basis of many end products, including plastic, paper, adhesives and detergents. Petrochemical manufacturers are the largest consumers of propane.

Global demand for U.S. propane has remained steady despite higher U.S. prices because international prices for propane and other feedstocks have also increased, according to the Energy Information Administration.

Global Conflicts and Natural Disasters

When war, political strife, conflict, or natural disasters like tsunamis, earthquakes or hurricanes occur in other regions of the world, this can impact crude oil and natural gas prices. Since propane is a by-product of both crude oil and natural gas, rising prices for these fuels have a ripple effect on propane.

Before the start of the war in Ukraine in late February, energy prices had been rising in anticipation of the potential sanctions that could be levied on the Russian energy sector if the country went ahead and invaded Ukraine.

Russia carries clout because it is the third-largest petroleum and liquid fuels producer in the world, behind only the United States and Saudi Arabia. It’s a major exporter of both crude oil and natural gas.

Even the hint of a possible disruption in energy supply will heavily influence the buying and selling done by commodities traders. In the frenzied world of investment, this is known as the fear factor.

When Russia eventually invaded, and the U.S. placed a ban on Russian imported oil and petroleum products—with other countries expected to follow—that meant there would be a big energy void to fill. Those who make their living in the oil markets don’t like that uncertainty. This includes the speculators who are betting on price moves as well as the hedgers, who are limiting risk for their clients who are involved with either the production or consumption of oil.

Are There Other Factors That Influence Price?

Long-time factors that have always influenced where prices go include proximity of supply, transportation bottlenecks, energy policy, and manufacturing trends. More recently, these issues have also come into play:

So…What’s Coming Next?

We don’t know where things will go from here. One thing we can tell you is that we hate this as much as you do. Some people are under the misconception that when prices rise, we make more money. The opposite is true. People cut back on usage. They have trouble paying their bills, and our receivables skyrocket. Meanwhile, we must pay our suppliers in just ten days. It becomes a mess for everyone involved.
  
One thing you can count on is that we will not let you run out. We have been in business for many years and have very strong relationships with suppliers and financial institutions.
  
If you have having trouble paying your bill, please talk with us before it becomes a problem. Many times, we can work out something to give you more time, especially if you’ve been with us a while. We can also set you up on a monthly payment plan.  
  
Nothing will make us happier than when prices start dropping. Until then, trust us to look out for you as we have for decades prior.