Propane is a clean-burning and efficient fuel source that many people rely on to power appliances within their homes each day. If you are thinking of making the switch to a gas stove, furnace, or heating system, you may be wondering what you can expect to pay for the propane you will use in the future.
Estimating propane prices can be a challenging task because the actual price of this fuel is affected by many different variables. Understanding these variables will help you better determine if propane is right for your home.
Crude Oil Costs
Propane is a byproduct of the crude oil refining process. This means that the price of propane will be affected by crude oil prices within your market. The price-per-barrel for crude oil is constantly fluctuating as a result of geopolitical issues.
Although propane prices don't fluctuate as much as gas prices at the pump when crude oil values change, you may see a slight increase or decrease in propane costs as the crude oil market fluctuates.
Supply and Demand
The rule of supply and demand is an economic principle that applies to all commodities on the open market. Propane is a stable fuel that can be stored safely for long periods of time. This stability allows suppliers to create large stores of propane. These stores are held in reserve for times when demand for propane is estimated to the peak. Typically, this peak demand period occurs during the winter months. This explains why propane prices are higher in winter than they are in summer.
Occasionally, demand will increase unexpectedly and catch propane suppliers by surprise. This surprise demand can drive propane prices up on a temporary basis until production catches up and propane reserves are restored.
Proximity to Production
Location matters when it comes to propane prices. Delivery costs factor into the overall price that a consumer will pay for their propane. The closer you live to a major distribution point, the more affordable your propane will be. Costs increase the further out delivery gets because you will have to pay for the propane itself and the delivery costs associated with moving propane from the supplier to your home.
Each propane supplier relies on a different distribution point, so you may see price differences between propane companies in your area. Don't be afraid to shop around for the most affordable propane if you are looking to reduce fuel costs in the future. Reach out to a propane company near you for more information.