March 8, 2017
One of the first questions potential propane customers ask when they contact us is; What is the price of propane? The answer to this question is not as simple as the question itself. Propane prices depends on two things that no one can hold down for very long at any given time. Those factors are the market price of crude oil, and product supply and demand. In addition to those unpredictable factors, each propane company has it’s own formula for pricing which is usually based on propane tank size, quantity purchased, and other fees.
So, how does the market price of crude oil affect the price of propane?
Propane is a byproduct of oil and gas production. This means that the price of propane follows the trend of the market price of crude oil. When crude oil prices rise, the price of propane will increase. Likewise, when crude oil prices are low, the price of propane will decrease.
How does supply and demand effect my price for propane?
Although domestic propane production is constant, residential propane use is seasonal. Propane inventories build up over the warmer summer months. During this time, when the supply of propane is up and consumption is down, the price of propane will also come down. During the colder winter months, when people are using propane to heat their homes, the price of propane will increase since the supply levels are lower and the consumption greater.
How do propane companies set their pricing?
Each propane company has it’s own formula, however, most companies base their formula on the market price, which means the price of propane is always a moving target. Some of the bigger, national propane companies base their pricing on the national (east coast) market price, which is sometimes different than the local (west coast) market price. During the winter of 2014, we saw the national price of propane skyrocket due to incredibly low supply on the east coast as the result of a massive cold snap. That same winter our local west coast supplies stayed healthy, allowing local companies to keep their prices much lower than those of the big national companies.
What other factors do most companies base their propane pricing on?
Buying in bulk is cheaper. The bigger the delivery, the cheaper the cost per gallon. When it comes to transport and labor costs, bigger deliveries are more efficient than smaller ones. Therefore most companies will charge more per gallon to fill a smaller tank than to fill a big one.
In addition to the actual gallons purchased, many companies will charge extra fees. Some charge extra delivery fees, HazMat, meter fees, pump out, tank removal, and meter fees, just to name a few. Be sure to ask each company what other fees they charge on top of the gallons of propane.