Outlook: As the Price of Crude Goes, So Goes Propane

Wherever crude prices go, like a loyal wingman, propane prices are sure to follow. (image: eia.doe.gov)

Gordon Pape, a blogger at Forbes, is making a nomination for “statistic of the year” and here it is: 87,400,000.

That is how many barrels of oil are consumed each day, according to estimates from the International Energy Agency. It’s a new high, and projections for 2011 have that number going up.

And like a pattern in the tea leaves, the global oil diet seems to be an indicator of the global economy: Higher gas prices, a boost for stocks, global warming. Pape also sees a strong oil appetite easing concerns about deflation, since strong demand will boost prices for a list of petroleum by-products. That means airplane tickets, golf balls, lipstick, and a grilled hamburger — if it’s cooked on propane.

So why do propane prices shadow oil prices? The connection is fairly intuitive. LPG is a byproduct of oil (and natural gas) refining, so higher prices for West Texas Intermediate will naturally raise the cost to fill up your Blue Rhino tank.

At the same time, there’s a less obvious connection here. Propane competes with other oil-based fuels in the marketplace. As prices for crude rise, end users look for alternatives, and demand for LPG goes up, too. That storyline could be read in some of the international headlines last week.

Check the graph for the pattern: Bump up the price of crude, and propane soon follows.

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