Propane Prices Influenced by Crude Oil and Natural Gas

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• Propane prices have been high this year for several reasons. Propane usually follows crude oil prices more closely than natural gas prices. As crude oil prices rose beginning in 1999, propane has followed.

• In addition, some early cold weather this year put extra pressure on prices.

• However, more recently, the highly unusual surge in natural gas prices affected propane supply and drove propane prices up.
  • Propane comes from two sources of supply: refineries and natural gas processing plants.
  • The very high natural gas prices made it more economic for refineries to use the propane they normally produce and sell than to buy natural gas.
  • The gas processing plants found it more economic to leave propane in the natural gas streams than to extract it for sale separately.
  • While supply diminished, demand did not. The net result was more pressure on propane prices, driving them up along with natural gas prices.