Propane prices are subject to a number of influences. Some are common to all petroleum products and others are unique to propane. Since propane is portable, it serves many different markets ranging from fueling barbecue grills to producing petrochemicals. The price of propane in each of these markets is influenced by many factors. These factors include the prices of competing fuels in each market, the distance propane has to travel to reach a customer and the volume needed by a customer. More specifically, propane prices are affected by:

Crude Oil and Natural Gas Prices - Although propane is produced from both crude oil refining and natural gas processing, its price is influenced mainly by the cost of crude oil. This is because propane competes mostly with crude oil-based fuels.

Supply/Demand Balance - Propane supply and demand is subject to changes in domestic production, weather and inventory levels among other factors. While propane production is not seasonal, residential demand is highly seasonal. This imbalance causes inventories to be built up during the summer months when consumption is low and for inventories to be drawn down during the winter months when consumption is much higher. When propane inventories at the start of the winter heating season are low, chances increase that higher propane prices may occur during the winter season.

Colder-than-normal weather- Colder than normal temperatures can put extra pressure on propane prices because there are no readily available sources of supply except for imports. Imports may take several weeks to arrive causing larger-than-normal withdrawals from inventories to occur, sending prices upward. Cold weather early in the heating season can cause higher prices since early inventory withdrawals will affect supply availability for the rest of the winter.

Proximity of Supply - Due to transportation costs, customers farthest from the major supply sources (the Gulf Coast and the Midwest) will generally pay higher prices for propane.

Markets Served - Propane demand comes from several different markets. Each market exhibits distinct patterns in response to the seasons and other influences. Residential demand depends on the weather, so prices tend to rise in the winter. The petrochemical sector is more flexible in its need for propane and tends to buy the most propane during the spring and summer, when prices decline.

If producers of petro-chemicals would have to depart from this pattern for some reason, the coinciding demand could raise prices. And when prices rise unexpectedly, as they do sometimes in the winter, petrochemical producers pull back which helps to ease prices. Prices can also be driven up if the agricultural sector demand for propane to dry crops remains high late into the fall- the same time that residential demand begins to rise.

Different markets also use different volumes of propane which impact the price. For example, the petrochemical sector, which is primarily located near major propane supply sources, uses large volumes of propane that are delivered by pipeline. This allows for a lower unit cost (cents per gallon) compared to other propane consumers. However, residential consumers use relatively small volumes that are delivered long distances by interstate pipeline and by truck which causes the unit price for propane to be much higher.