Why Doesn't Premium Gas Cost More?

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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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Former Assistant Managing Editor-News Kelsey Mays likes quality, reliability, safety and practicality. But he also likes a fair price. Email Kelsey Mays

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