Q:

How is the price of propane per gallon determined?

A:

Quick Answer

Like gasoline, propane is a commodity that is refined from other commodities, which means that its price is determined by many different factors. Some of these factors include the worldwide supply and demand for propane and the customer's proximity to a major supply source.

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How is the price of propane per gallon determined?
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Full Answer

Propane is produced from either crude oil refining or natural gas processing, which means that the price per gallon of propane is also determined by the price of these commodities. However, the price of crude oil is the one that most affects the price of propane, as propane competes mostly with other crude oil-based fuel sources.

The proximity to a major supply source plays a role in the price per gallon a customer can expect to pay due to the additional transportation costs. In general, the further away a person is from a major supply source, the higher the price of the propane should be. In the United States, the major supply sources are generally located near the Gulf Coast and in the Midwest, so customers in these areas may pay less per gallon due to the lowered transportation costs.

Demand plays a major role in the cost of propane, and prices tend to be higher during the winter months as there is a higher demand for propane being used for heating purposes.

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