Q:

How does the cost of oil affect the cost of propane?

A:

Quick Answer

The cost of propane tends to follow the price of crude oil. Propane is a byproduct of producing both crude oil and natural gas, but the crude oil price has the greatest influence. Other factors affecting costs include supply and demand, weather and the distance the supplier ships it.

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Full Answer

As of 2015, approximately 55 percent of U.S. propane results from crude oil refining. Americans use propane to heat their homes, heat water and cook. Recreationally, they use the fuel in barbecue grills and in campers. Industry uses propane to fuel forklifts and other tools with internal combustion engines. Some vehicles use liquefied propane instead of gasoline.

Like other products, supply and demand also affects propane prices. When there is a high demand due to its use for home heating, prices are higher, but when the demand drops, supply increases and prices are lower. Use of propane as an alternative clean-burning fuel is likely to increase demand. Unexpected changes in the weather also affect the demand for propane.

Most crude oil and propane production takes place along the Gulf Coast and in the Midwest. Shipping propane to distant customers adds to the cost of the product. An increase in fuel costs increases the cost of shipping and ultimately, the cost of propane.

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