Recent Propane Price Movements
Propane prices have been on a downward trajectory since the latter half of 2008. Many factors affect the price of propane, but its steep decline over the course of the past year is mostly due to its strong correlation to crude oil prices. As we are now entering the winter season we can expect propane prices to rise slightly, all else equal. The price of crude oil will be a more significant factor and any sharp changes in the price of crude will have a more drastic affect on propane price levels than the typical seasonal factors.
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Factors Affecting Propane Prices
Inputs
o Price of Crude Oil: strongest influence on the price of propane
o Price of Natural Gas: although used for processing, not as significant
Supply/Demand Factors
Because demand is seasonal there is an imbalance between inventories in the summer and winter months. Demand for propane is low in the summer months and as inventories build up downward pressure is exerted on prices. As demand begins to increase in the winter months and the temperature drops in the American northeast propane prices are pulled in the opposite direction. Household consumption of propane depends highly on weather conditions. This is the major cause of increased demand in the winter. Similarly the agricultural sector has a need for propane in the late fall, around the time household consumption starts to creep up. The petrochemical sector on the other hand is much more flexible in its options and is able to take advantage of the shifting demand by purchasing propane in the summer when prices are low.
Transportation Costs
The farther your source of crude oil supplies is the higher the transportation costs you pay will be. While these prices are for the most part stable, if there is a major change in your supply source it could affect the costs you pay for transportation.
Future Prices
Since crude oil prices are forecasted to remain at current levels until the world economy rebounds in the upcoming years, the price of propane can also be expected to remain relatively stable. There are course will be seasonal fluctuations as mentioned above, but generally propane prices will continue to mirror that of crude oil. It is important to consider that while crude oil prices are widely believed to have little chance of increasing significantly, these markets are very sensitive and unpredictable. Any adverse developments could easily affect the price that investors are willing to pay for this commodity and this would have a corresponding affect on the price of propane.
Propane Price Spikes
The inventories that build up during the summer provide a cushion as the winter months come and demand starts to overtake supply. This is expected and the reason the inventories are allowed to build in the first place. However sometimes there is a winter season that is unusually cold or long and this can put added pressure on supplies and prices. A common example is if cold weather hits early in the heating season and coincides with the high demand of farmers in the fall. This would be a shock to demand that was not built into expectations. If there is a sudden disruption in supply it can have the same effect. So can the mere delay in the delivery of a major shipment. In these instances there can be a drastic spike in the price of propane that is uncorrelated to input prices. These spikes are only temporary and prices eventually return to more normal levels as market participants react to the circumstances.
Current Propane Prices LOWES ELECTRIC FIREPLACES
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