Friday, January 23, 2015

Another Benefit of Dropping Oil Prices

LP gas prices are tied to gasoline prices (I don't know why), so this dramatic reduction inn gasoline prices should get the next fillup of LP gas down to $1200 or so.  Of course, I bought a 1000 shares of Suburban Propane (SPH) because of the absurd 6% dividend, so perhaps that  will drop.

5 comments:

hga said...

More likely tied to crude oil prices.

You get it from either extracting the heavier stuff from natural gas, or the really light stuff from refining petroleum (especially, I would imagine, when you have to crack heavy crude oil).

So one of those feedstocks is way down, and could well have a big effect at the margin.

Dean in Az said...

When oil is refined a process called Fractional Distillation is used. Simplistically, each different component that can be separated from the crude oil is cooked out in a process in a distilling tower; at each level of the tower the heated components rise and cool as the distillation process occurs. The heavier components, like grease and lubricating oil fall out first. The lighter components like gasoline and some of the gasses rise to the top and distill out of the vapor there. If crude oil is cheaper and yields the same proportions of oil, gasoline, and propane, if a barrel of oil cost less then so will the LPG.
This is part of the reason you see phrases like "West Texas Intermediate Crude"; it's a general indication of the nature of the fractions in the end product and helps determine the price due to the expected resultant distillation process. A "light, sweet" crude oil has far more gasoline and propane type components than a heavy crude oil, which yields more lubricants, heavy fuel oils and diesel fuels.

w said...

LP gas is a by-product of petroleum refining (also natural gas production) so that is the reason why.

hga said...

Dean in Az: For a long time we've gone beyond simple distillation and have been cracking heavy crude into lighter distillates, which per the summary at the top of the Wikipedia article "Fluid catalytic cracking produces a high yield of gasoline and LPG, while hydrocracking is a major source of jet fuel, Diesel fuel, naphtha, and LPG." "LPG" being butane and/or propane.

Dean in Az said...

Awesome to know that hga. Thanks for sharing.