No matter what the price of regular gasoline is, there is always a fixed 10-cent price jump between grades. But if premium is more expensive to manufacture, then shouldn’t the increase in the price mirror the percent increase for regular also?
For example, way back when regular was $1 per gallon, premium was $1.20, or 20% more expensive. Today at $3 per gallon, it’s $3.20, or less than 7% more. Shouldn’t premium be more like $3.60 per gallon, if it’s really worth that much more?
Does the price reflect actual costs, or is it merely a percieved value in the minds of the consumer?
Perceived value in the minds of consumers, combined with a desire on the part of oil companies to stick it to them. Think of it as de facto price fixing.
I don’t understand your argument. All of the grades come from the same crude oil. It takes a certain amount of money to process “regular” gas and an additional amount of money to process it as “premium” gasoline. Just because the cost of oil goes up, it doesn’t mean that it costs the refineries any more money than it did before to create premium gasoline. It stands to reason then, that premium gasoline should cost and absolute amount rather than a percentage over the cost of regular gasoline.
Premium gas simply has a higher ratio of octane to heptane than regular gas. Every barrel of petroleum is “cracked” (distilled) into a number of different fractions (butane, propane, etc.). Octane, which has more desirable combustion characteristics for high compression engines, is more valuable than heptane, and therefore gas at the pump that containes more of the former is more expensive. I’ll leave it to a more knowledgable person to indicate how much of each fraction is produced from a given quantity of crude.
The octane rating is a measure of how air/fuel mixture is to detonation. All other things being equal, a higher octane gas can typically be used in at a higher compression ratio, for example. Premium gas has a higher octane rating.
Chemically there are a number of ways to acheive this. Cerowyn brought up the way that’s usually thought of. In the old days, it was done by addiing tetraethyl lead – we don’t do that any more since lead in the environment is very bad and in kills catalytic converters. Adding ethanol to gasoline will also increase the octane rating. In any case, under normal circumstances, higher octane gas does cost more to produce.
Anyway, I haven’t observed this strict 10 cent difference regardless of price.
An even bigger chunk is us being ripped off. Don’t get me wrong, I’d love to see taxes take gas prices to $8 a gallon. But I see signs at the gas stations that list state and federal taxes, which come to less than 20 cents a gallon.
Taxes only account for 10-20% of the price of gas in the states. Unfortunately, I can’t find the chart any more, but a few days ago I read a news story about states temporarily repealing gas taxes that listed the total taxes levied on each gallon in the several states. The lowest was Alaska at around $0.24/gal and the highest were around $0.65/gal. That includes federal tax of 18.4c/gal, state fuel taxes and state sales taxes.
Well that sign is wrong. There is a 17.4 cent per gallon federal tax. In california an addition 18 cent per gallon state tax. Plus about 7.25% sales tax.
I worked at Amoco headquarters briefly back in 1995. I’m certainly no expert on the oil industry, but I can tell you what the guys at the lunch table said: Oil Drilling rigs cost billions of dollars to build and operate, as do refineries. Add to that the fact that frequently a drilling rig will find a likely location, spend a significant amount of time drilling, and find there’s no oil where they thought there would be. $100 million lost just like that. Happens all the time.
The cost of the drilling rigs and refineries can still pale in compairison to the cost of transport - supertankers, pipelines, tanker trucks all have a high cost to create and maintain, and all need to deal with the different laws and fees of whatever localities they have to pass through. The bureacracy alone costs hundreds of millions to run.
I’m no fan of the oil industry by any means, but all told, we’re getting a pretty reasonable deal.
Will you agree that some substantial part of this goes toward the cost of obtaining and transporting the crude oil, then refining, transporting & retailing the gasoline?
In this thread you have asserted “de facto” price fixing, and that the “ripoff” in gasoline prices is larger than the taxes collected. Your contention as to the amount of those taxes in your home state was low by a factor of 3. Perhaps your impressions about these other matters are also faulty.
Maybe I can elaborate. A lot of people believe that oil would somehow become a renewable resource and all our problems would be solved if we just folded ourselves into ugly tiny useless cars that get 30% better gas milleage instead of buying whatever we actually like to drive. :rolleyes:
I’m positive this thread is going to GD in a handbasket, but I’ll attempt to rescue it anyway.
What do they put into premium to make it premium? Alternatively, what do they take out to make it premium?
I’m not an oil expert, but I’m a chemist, and as such, am familiar with fractional distillation and the basics of such. Now, if I had to guess, I’d say that they separate crude oil into as many different fractions as they possibly can, and then combine them based on what they want to sell.
Logically speaking, there is then no extra cost to making premium gasoline – you have to spend the same amount of energy distilling it, so the cost is invariant of how many grades of gasoline you sell eventually. Now, economically speaking, it’s certainly profitable to create super-refined grades of gasoline, which can be sold at a higher price.
But then the difference in price is solely a function of market demand - that is, they could sell 91 octane for an insane amount, forcing people with 91+ octane requirements to pay through the nose.
No, I’m not wrong. Check out what people in other parts of the world pay for gasoline. Europe, for example. All told, we pay decent prices for gas, even at the currently inflated levels.
But I should add that just because we’re getting a fairly reasonable deal doesn’t mean the oil companies aren’t out to screw us every chance they get. They are. If Congress didn’t come down on them so hard for price gouging and such, they would be charging us $8.00 a gallon right now.
It’s another topic for another thread, but someday I should post my observations from my six months at Amoco, how the oil guys justify this to themselves in their minds.
The short version: *The world would stop running and modern civilization would collapse without oil. Big Oil provide the lifeblood our country runs on. They go to extreme measures to be as environmentally safe as possible * (their definition of ‘environmentally safe’, not mine,) they do all they can to recycle and reuse all the oil byproducts, yet they are always castigated in the press as being big polluters and big bullies, and they are constantly demonized. You’re dang right they deserve $8.00 a gallon!
I won’t try to defend it, but that’s how they think. They aren’t bad people, they just think different than the rest of us. Maybe they think badly. That’s a subjective call.
I thought this thread was going to be about the fuel manufacturing process and the economics of same, along the lines of yerba buena’s post. It’s veered off on some “evil corporation bashing” tangent that serves no useful purpose, so I’m asking the mods to lock it.
What about the other 2.50?