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Thursday, October 25, 2012

"Grade Gap" Widens as consumption of premium gas drops
If you are thinking of buying a performance vehicle that requires premium fuel, you might want to think twice. Another way for the oil companies to raid your wallet!

Thanks to and by Patrick DeHaan on Oct 23, 2012 12:35 PM Link to his piece below:

"Grade Gap" is the term I've dubbed to explain the gap in price between regular gasoline and other higher octane gasoline- mid-grade and premium. A decade or so ago, the "grade gap" might have been 7-8 cents per gallon (mid-grade 7-8c/gal more than regular, and premium 7-8c/gal more than mid-grade), but my oh my how things have changed.

If you've been driving a car that requires premium fuel, you've likely noticed- I know I have. Only a few stations now sell premium for 20c/gal more than regular. If you're lucky, you might find the grade gap single digits (premium 9c/gal higher than mid-grade, etc.) but nowadays its becoming very hard to find it. Generally, higher end or performance vehicles require premium to function as intended (my car, equipped with a turbocharger, requires premium). Most cars don't need or benefit from premium.

On the way to Chicago this past weekend, a Love's Travel Center had the old "standard" 10c/gal gap: regular for $3.29, mid-grade for $3.39, and premium for $3.49, a rarity. A competing travel center, Pilot, just down the road had a much higher grade gap: 13c/gal, or regular for $3.29, mid-grade for $3.42, and premium for $3.55. In some situations I've even seen stations selling premium for 40c/gal more than regular, when I'm used to seeing it for 20c/gal!

Now not all stations have 10c/gal grade gap, but I've noticed a local chain has stayed at 10c/gal grade gap, and I routinely fill there, because all of their hundreds of stations have the same grade gap. I regularly skip stations where I know the grade gap is higher.

So- the big question- why has this been happening? I surmise much of it has to do with declining consumption of premium gasoline, and accordingly, refineries aren't making as many batches. When inventories of premium is very tight, the grade gap soars. It's not the stations that are raising prices, but its because of refineries and the tight supply. At one point this summer, I saw the wholesale price of premium 90c/gal higher than regular. I was so happy that stations didn't pass that along- because many of them didn't need to since they don't sell much premium fuel anymore. In July 2012, the last month data is available for, the EIA says refiners sold 2.85 million gallons of premium gasoline per day, down from 4.94 million gallons in July 2006, and down from 10.8 million gallons per day in July 1992.

Things will only get worse as premium fuel use drops, and refineries continue to make less of it, leading to significant price volatility. You can bet that one day stations will stop absorbing the hit or not passing it along, and that's a day I dread.
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