Gas prices explained

B

Burt

Joined
Jan 8, 2009
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Location
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I read a couple of articles that finally gave a good explanation of why premium gas costs so much. Something more insightful than just 'demand for premium is high'.

It said up until ten years ago, natural gas prices were high and therefore chemical manufacturers used naptha to make plastics. When natural gas prices dropped, chemical manufactures switched to that feedstock (even though it makes fewer byproducts) because was advantageous. That flooded the market with naptha which is low octane gasoline, driving its price down. So premium gas didn't go up in price so much as regular went down, increasing the spread between the two. And demand for diesel and aviation fuel was strong, so refiners made profit on those two products and dumped gasoline at cost.

Now with Covid, airlines aren't buying jet fuel (kerosene) and the refiners alternative is to make and sell more diesel fuel in a depressed market. In order to make a profit on refining a barrel of oil, they have to make it up on gasoline. Therefore the spread between diesel and gas is narrowing.

Interesting that the price of natural gas and jet fuel impact your relative gasoline cost.
 
It's also interesting that price spread between regular and premium gasoline is highest in the midwest and lowest on the west coast. Then again, premium here is 93 octane while it is typically 91 octane out west.


https://www.eia.gov/analysis/octanestudy/

[Linked Image from eia.gov]
 
This makes it all the more curious why manufacturers are moving toward premium burning engines, more so than before. Last I heard, 41% of all new engines manufactured are made for premium.

BTW I know the answer is CAFE.
 
Originally Posted by Kestas
This makes it all the more curious why manufacturers are moving toward premium burning engines, more so than before. Last I heard, 41% of all new engines manufactured are made for premium.

BTW I know the answer is CAFE.


That and higher compression ratios with the influx of turbochargers.
 
Originally Posted by Kestas
BTW I know the answer is CAFE.

Yup. Achieving better CAFE numbers while making the customer pay for it at the pump.
 
Originally Posted by Danno
In other words, supply and demand determine pricing.


That only works in a laissez faire economy which doesn't exist. In real life, there are more, and more powerful, factors involved.
 
Originally Posted by Kestas
This makes it all the more curious why manufacturers are moving toward premium burning engines, more so than before. Last I heard, 41% of all new engines manufactured are made for premium. BTW I know the answer is CAFE.
Consider all of the small displacement engines that are turbocharged (single and twin) on the market these days that are making more power than V-8 engines of yesteryear. The move for the vast majority of manufacturer's is towards these type engines to reduce cost and increase power and economy (which is a CAFE item), but at the same time due to the power factors often require (or at least recommend) premium fuel.
 
Naphtha falls between gasoline and kerosine for combustibly. It is not identical to low octane gasoline but can be used to make gasoline. Don't forget gasoline is a traded commodity on the Chicago Mercantile. The traders determine the price and from there, more money is added to pay the shippers, retailers, taxes and finally the gas station marketers. The current traded price of gasoline is $1.10/ gallon. It is up from 50 cents back in late March. Gasoline consumption during the last month was the lowest since the 70's.
 
Originally Posted by Kestas
This makes it all the more curious why manufacturers are moving toward premium burning engines, more so than before. Last I heard, 41% of all new engines manufactured are made for premium.

BTW I know the answer is CAFE.


IMO the answer is that more and more folks (enthusiasts if you must) are demanding performance and HP that makes the fastest muscle car of the 1960's to early 1970's seem slow by comparison.
 
Originally Posted by Quattro Pete
Originally Posted by Kestas
BTW I know the answer is CAFE.
Yup. Achieving better CAFE numbers while making the customer pay for it at the pump.

Yes, but on the other hand (and I know we've had this discussion before), at least it's a basic and legitimate way to increase efficiency. If you increase the compression then efficiency goes up.

Better than all the expensive goofy stuff they are also doing like stop/start and similar schemes.
 
Most of the higher price for premium over regular is being 'enjoyed' by the retail outlet. Manufacturing costs don't explain the big premium. Neither do spot market prices.
 
Originally Posted by Quattro Pete
Originally Posted by Kestas
BTW I know the answer is CAFE.

Yup. Achieving better CAFE numbers while making the customer pay for it at the pump.


The difference between premium and regular is currently ~70 cents a gallon in my area, or $7 on a 10 gallon fill up. <$400 a year difference assuming you put 10 gallons in a week. Some people spend more on coffee or eating out everyday than that.
 
Originally Posted by Skippy722
Originally Posted by Quattro Pete
Originally Posted by Kestas
BTW I know the answer is CAFE.

Yup. Achieving better CAFE numbers while making the customer pay for it at the pump.


The difference between premium and regular is currently ~70 cents a gallon in my area, or $7 on a 10 gallon fill up. div>

Very true--typical buyer, this should be a non-issue.

Me, pre-pandemic the wife and I were going through 40 gallons per week. $30 or so extra each week for cars we like to drive would be small cost. If it doesn't make us more happy though then that is a nice chunk of change towards something else.
 
Originally Posted by Skippy722
Originally Posted by Quattro Pete
Originally Posted by Kestas
BTW I know the answer is CAFE.

Yup. Achieving better CAFE numbers while making the customer pay for it at the pump.


The difference between premium and regular is currently ~70 cents a gallon in my area, or $7 on a 10 gallon fill up. div>

Sure. And for other people $400/year is a sizable chunk of change.

Anyway, I am not concerned about the actual amount of that extra cost as it will obviously vary based on a number of factors. I am just stating that this CAFE improvement is achieved by having the customer pay for it. But maybe we're better off as a society, regardless of who foots the bill? No idea.

Requiring high-end (read: expensive) fluids is another example of this, but maybe we get to extend the maintenance intervals as a result?
 
Quote
Most of the higher price for premium over regular is being 'enjoyed' by the retail outlet. Manufacturing costs don't explain the big premium. Neither do spot market prices.


This is probably the most correct reason.

My question is, Why don't we just move to a single OCTANE grade of fuel. Poor people that don't need it use it anyway, thinking it gives them more power. Those that do need it will benefit from the reduced price of storage, shipping, dispensing, etc.
 
Originally Posted by JohnG
Quote
Most of the higher price for premium over regular is being 'enjoyed' by the retail outlet. Manufacturing costs don't explain the big premium. Neither do spot market prices.


This is probably the most correct reason.

My question is, Why don't we just move to a single OCTANE grade of fuel. Poor people that don't need it use it anyway, thinking it gives them more power. Those that do need it will benefit from the reduced price of storage, shipping, dispensing, etc.

? Then that must mean you're sticking it to the middle class then? I don't think I've ever used premium. I've never owned a vehicle that it would make a difference in--if I could prove that it would lower my cost/mile I would, but so far I've not had a vehicle that either needed it or could benefit from it. Given half a chance OEM's would go right for premium--all the while increasing vehicle weight and other things that would actually NOT save me money.

If left up to yokels like me I'd vote for 80 octane--if it was cheaper.
grin2.gif


I guess I just don't see a problem here. The wife has no idea what the difference is but knows to put in what the manual calls for--it's not rocket science. And if she was confused, five minutes online would give her the answer.
21.gif
 
Originally Posted by supton

If left up to yokels like me I'd vote for 80 octane--if it was cheaper.
grin2.gif



We'd all give up a bunch of power then, hard pass! I like my 395hp v8 and 283hp V6.
 
Refineries used to burn most the naptha up the stack, almost the same for sulfur except they can more easily bunker store sulfur than naptha which displaces tank space for more valuable products.
 
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