Propane is a type of fuel, sometimes referred to as liquefied petroleum gas (LPG). It can be produced both from the processing of natural gas and also the refining of crude oil. It is colourless and odourless, and is considered to be non-toxic. As the gas is odourless, an additive that provides it with a readily identifiable smell is often added. It is considered to be a relatively safe fuel, as the range at which it is flammable is very narrow. Mixtures of air and propane that contain less than 2.2 percent gas are too lean to burn. Liquid propane also vaporises on contact with air, so the potential for hazardous leaks is almost non-existent.
As a commodity, propane is appealing as it is an environmentally friendly fuel. It is one of the cleanest alternative fuels available, and is compliant with ultra-low emission standards when it is used in vehicles. When it is burned, it releases only half the pollutants of coal, and as it is non-toxic it is not harmful to soil and does not contaminate water supplies. The fact that there is a limited supply of it means that prices are likely to rise, particularly as it could potentially grow to replace less environmentally friendly forms of fuel.
When undertaking propane commodity trading, general investors and commodity brokers should be aware of a number of factors. The main market for propane is the fuel industry. It is often used as a source of heat when it is burned, so colder climates, such as Alaska and the northern American states use significant quantities of propane. It can be used in furnaces, water heaters, fireplaces and dryers to provide heat, so the domestic market for propane is large. It is also employed in the transport industry as an alternative fuel, being used in forklift trucks and an increasing number of commercial and domestic vehicles. The farming industry is a further heavy propane user, as the gas can be employed in irrigation pumps and other farming equipment.
The United States is one of the major producers of propane, and approximately 90% of the propane produced is the US is produced domestically. A large proportion of the rest is imported from Canada.
There are several factors that traders need to be aware of when dealing with propane futures. The propane market can be affected by the stringent requirements that are imposed on propane producers. Insurance is considered to be the largest expense a propane producer will endure, and so fluctuating prices in this will consequently alter the spot price of propane, so companies can maintain healthy margins. The weather is also an important factor that can influence propane future prices, as a sudden spot of cold weather will drive up the demand and price of propane, while an extended hot spell will signal the reverse. It is possible to make a healthy return when propane trading, but it is essential that all factors that influence price are monitored continually, as it is easy for a random event to heavily affect the price of propane.
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