According to the Energy Information Agency (EIA), propane prices are subject to a number of influences, some common to all petroleum products, and others unique to propane. Because propane is easily transported, it can serve many different markets, from fueling barbecue grills to producing petrochemicals. The price of propane in these markets is influenced by many factors, including the prices of competing fuels in each market; the distance propane has to travel to reach a customer; and the volumes used by a customer.
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 relationship is because propane competes mostly with crude oil-based fuels.
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 inventories of propane are low at the start of the winter heating season, chances increase that higher propane prices may occur during the winter season.
Propane prices occasionally spike, increasing disproportionately beyond that expected from normal supply/demand fluctuations. The main cause appears to lie in the logistical difficulty of obtaining resupply during the peak heating season. Because propane is produced at a relatively steady rate year-round by refineries and gas processing plants, there is no ready source of incremental production when supplies run low.
