Why Doesn't Premium Gas Cost More?
It’s not that we’re arguing; with a gallon of regular gas cresting $4 here in Chicago and in New York, we’re glad premium still commands just the usual extra 20 cents — many of the cars we test recommend or require it, so we’ll take what we can get.
It’s been this way for years: In May 1995, the EPA pegged a gallon of regular gas at $1.18 nationally, midgrade at $1.27 and premium at $1.36. Today it’s $3.72, $3.83 and $3.94, respectively. If higher-octane fuels had commanded proportionate increases in the intervening years, by now we’d be forking over an extra 28 cents for midgrade and 57 cents for the good stuff.
We’re lucky we’re not. John Duff, a senior petroleum analyst at the Department of Energy, said a proportional increase would certainly make sense.
The components that raise a gasoline’s octane levels — called alkylates — are relatively expensive, and they’ve grown pricier with the cost of oil, so the price difference should have increased proportionately, Duff said.
It hasn’t because the market would balk at a 40- or 50-cent hike for premium fuel, said Fred Rozell, director of retail pricing at the Oil Price Information Service, an organization that provides analysis and pricing information to the oil industry. As it stands, premium fuel is already losing popularity, Rozell said.
Dan Gilligan, president of the Petroleum Marketers Association of America, agrees.
“The refiners have learned that if premium fuel is priced x cents over unleaded or over mid-blend, people quit buying it, and when they quit buying it, they have to lower the price anyway,” he said.
Does that mean oil companies are taking a hit on the expensive stuff? Perhaps, DoE’s Duff said, but they can probably afford it: “I’m sure that it doesn’t make that much of a difference in the long run to them,” he said. “At 10-cent [premiums], I know that their profit margins are much better on higher-octane gasoline and traditionally always have been. So there’s probably leeway there in tinkering with the price to get it to sell. They always have made a lot of money off the higher-octane gasoline.”
“I think they were marking it up more than they had to when the spread was 10 cents, and now they can charge the same and it works out roughly even,” Duff said.
So what if the market begins to reject the 20-cent spread? By at least one account, that’s already happening: Rozell said about 90% of drivers now use regular fuel despite more of today’s models recommending or requiring higher octanes.
Could premium gas become not-so-premium in price? Duff thinks it’s certainly a possibility.
“We may end up seeing that,” he said. “People are going to look for ways to economize on gasoline. … We may actually see that 10-cents-a-gallon differential collapse.”
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An uncle of mine used to work for the service center of a gas station. According to him, gasoline companies do NOT set a price on mid or premium grade. Basically, the station will get a call from the regional management of the gasoline company at a certain time, and the calling person will tell the gas station that it's in X location, and so from now, the regular grade gasoline is $A.BC 99/100 per gallon. Then the caller would just hang up! It's up to the gas station's owners sole determination on how much mid and premium grade will be. Thus, sometimes you see a difference of 5¢/10¢ over reg., sometimes you see 15¢/25¢ difference (just an example here). With many automobiles RECOMMENDING premium gasoline for the improved performance, it's lucky that not ALL gas stations are putting a 50¢/gal surcharge on premium over the price of the reg.
you should try and come to europe and check out the gas prices there. In comparison to other countries the gas prices in the US are still cheap.
Jason,
But in Russia, Saudi Arabia and Columbia it's insanely cheap!
But have you seen how little earn in Russia and Columbia. It's probably still relatively cheap here in the USA.
We'll have to discount Saudi Arabia of course...
1 thg I forgot to mention - any chemist out there would have probably learned this in CHEM101 (or 2nd year). In refinaries, during the distillation of process of petroleum, there are different stages. Refinaries do NOT just produce 1 type of gasoline, say 87 grade, in the distillation process. In fact, many grades are being produced. From the very basic (crude) that aren't suitable for vehicle use (but for other stuff) all the way to jet fuel in 1 process. Thus, unless this is a myth being taught in chemistry, the fact is, it's not costing any extra $$$ to produce the 89 or 91 (or 93), when the utimate product (highest level in distill chamber) is of a very pure form, so most of the 10/20¢ is actually a profit to gasoline companies.
In my part of Wisconsin the standard is to price regular and mid grade at the same price and premium 20 cents over that.