Predicting the Price of Propane Is Tough
Utilities are one of the largest portions of a household budget. Naturally, the price is an important factor when choosing a supplier, whether it be for internet access or propane gas.
A very common question we are asked is, “Can you estimate the average propane price per gallon for the coming winter?”
Energy prices are always fluctuating for a variety of reasons, which makes it extremely difficult to predict a winter’s prices, even on average.
Conserving your usage is always the most cost-efficient solution when your budget is tight, but it can be discouraging to see prices rise, knowing that that means cutting down on usage even more. We want to help you understand why prices are not always consistent and how you can make the most informed decisions to combat price fluctuation.
Supply and Demand Fluctuate Throughout the Year
Supply and demand are the two main forces in our market economy. When the supply increases or demand decreases, prices drop and vice versa. As you probably know, factors like the time of year and the popularity of other products have an effect on supply and demand.
Crude Oil Prices Affect Propane Prices
One way that propane gas is created is through the oil refining process. During refinement, the gas is emitted and contained to be used as fuel.
Prices for oil increased about $10 a barrel to $50.79 from 2016 to 2017, just as predicted by the Energy Information Administration. The price was expected to increase again to $65.68, but as of May 2018, the price was already over $70 a barrel. The increase in oil prices will undoubtedly increase propane gas prices from 2017 to 2018, as well.
Additionally, if there is an unforeseen shortage of crude oil, the price of propane will also increase. For example, Hurricane Harvey hit fall of 2017 and shut down a third of the United States Oil Refineries due to flooding in the southern states. As a result, for months afterward the prices of oil and gas increased until the shortage had been made up.
In the northeast, nor’easters quickly become dangerous, dropping temperatures, and in some cases a few feet of snow and blizzard conditions. During these storms, as well as when the weather gets unseasonably cold, people use more propane to heat their homes.
Not a novel concept, I know, but it’s one worth mentioning because the seasonal demand increase is one of the top reasons that prices increase throughout the winter.
The prices rise as the temperature drops, and amount of propane demanded increases.
As a consequence, propane users go through gas more quickly, and the supply from their provider decreases faster.
Temperature fluctuation can make prices unstable as well. Demand is harder to predict when the weather jumps around between warm and bitterly cold, making shortages that much more likely if suppliers estimate incorrectly.
Winter 2017/18, the cold weather came early, and temperatures dropped suddenly. By December, the supply of propane was dangerously low, and by January many propane suppliers were rationing their supply in fear of running out of propane.
Propane Companies Charge Different Prices
Propane delivery companies may differ in price for a variety of reasons.
Companies Buy Their Gas from Wholesalers
Many propane suppliers pre-buy in bulk from wholesalers to get discounts and have inventory in case demand spikes. While pre-buy orders come with savings, the amount of savings may differ by company based on their supplies.
Purchasing gas in bulk requires financial muscle. Small or poorly managed propane companies don’t have the cash flow and the creditworthiness to pre-buy, and as a result, will have just enough supply on-hand to cover customer needs.
At Kauffman, we purchase propane in bulk so that we can pass on the lower prices to our customers. In years past, having a large store of propane allowed Kauffman to remain calm through winter storms and cold, while competitors were having shortages.
Overhead Costs Add Up
Overhead costs are costs that a company always has to pay, regardless of how much they produce or sell. This includes things like rent and taxes.
Federal regulations require specialozed training and procedures to be followed in order to handle and sell propane gas. These costs, along with salaries, insurance on delivery trucks, etc., all start to add up. Other local companies without the scale that Kauffman has may find these costs too high to overcome without directly charging their consumers more money.
Hidden Costs and Fees
Some prices seem like a steal until you get a bill with a laundry list of added fees. Beware, if prices seem too low, you might want to check out the fine print before hiring that particular company.
Propane companies, much like many businesses, offer a variety of special offers throughout the year. This includes discounts for switching to their service from another provider or special holiday pricing.
While this initially lowers the price, some companies are not upfront about the standard rates that will kick in after the offer period ends.
Kauffman runs deals for new customers, but we want customers to stick with us as their propane provider. We are always open about how offers will help with the cost of transitioning to a new company and are committed to getting customers the best prices even after they become established customers.
Combat Unstable Energy Prices
Enter a Pre-Buy Program
Ask your propane supplier if they offer a program that allows customers to buy the gallons they estimate that they will use for the whole winter, at one set rate per gallon. These programs allow customers to pay upfront, usually for to a certain maximum number of gallons, and to use up all of their pre-bought gallons before buying more at the peak winter prices.
This program eliminates the risk of paying more money per gallon in the winter when prices spike. Kauffman’s Pre-Buy Program allows our customers to do just that.
Efficient Energy Use
Maximize your energy usage to cut costs all winter and reduce the impact of winter price spikes on your budget.
Try a few of these tips to reduce your propane usage:
- Change furnace filters monthly
- Seal door and window cracks well to prevent drafts
- Lower your water heater temperature
- Use a smart or programmable thermostat
- Make sure your oven seals properly when it’s in use
Install a Larger Tank to Get You Through a Cold Spell
If your family makes it just under the wire each month before your refilling appointment, you should consider getting a larger tank for the upcoming winter. You’ll have extra on hand in case a storm hits, and save money in refilling costs.
Choose a Propane Supplier You Trust
You want to find a supplier that has been around for quite some time. That tells you they have weathered a few bad winters or severe shortages. Quite often, poorly managed companies barely survive a shortage.
Ask around for references and make sure you decide on a reputable propane supplier. You want someone who will be there for you through wild weather and never leave you out in the cold due to a shortage.
Prices May Waiver, But You Don’t Have To
You can’t control most of the factors that cause unstable propane prices any more than your supplier can, but hopefully, you can use this knowledge to make more informed decisions.
Now that you have the knowledge and tools to prepare you for changes in fuel prices, get started early! Summer is the best time to begin planning for your winter fuel needs, and lock in your rate.
Kauffman allows our Pre-Buy Program customers purchase propane in August at the current rate and use it all winter!