11.25.09 | U.S. residential propane prices increase
The average residential propane price rose 2.7 cents per gallon to reach 224.0 cents per gallon. This was a decrease of 20.3 cents per gallon compared to the 244.3 cents per gallon average from the same period last year. Wholesale propane prices dropped 2.1 cents per gallon, from 119.1 cents per gallon to 117.0 cents per gallon. This was an increase of 32.8 cents per gallon when compared to the November 17, 2008 price of 84.2 cents per gallon.
Why do propane prices spike?
From the Energy Information Administration; Read the full report.
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.
Propane wholesalers and retailers are forced to pay higher prices as propane markets are bid higher due to dwindling supply. Consequently, higher propane prices are simply passed on to consumers. Imports do not offer much cushion for unexpected demand increases or supply shortages due to the long travel time.
On the other hand, when propane prices do spike, the petrochemical sector may cut back on its use, thus freeing up supplies for other uses.
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