Gasoline prices - not the usual

General Questions
#1

Back in my early days of driving (~10 yrs ago), I could find gas for as low as $0.69/gal, regular unleaded. Premium and super were always $0.10 and $0.20 higher, respectively. Fast forward to present day, and we’re paying around $2.80/gal, but premium and super are usually (but not always, I’ll admit) still $0.10 and $0.20 higher.

This seems like artificial pricing to me - the percentage difference between regular & super in my ‘old days’ example was ~30%, now it’s ~7%. Why isn’t super now $3.65? Alternatively, why wasn’t super $0.74? What’s the straight dope?

#2

Gas is gas, however, the additives are another and aren’t based upon the price of crude.

That’s the difference - it’s not refining that turns your regular into premium, it’s additives. The additives aren’t based upon the cost of oil, so that’s why when gasoline raises in overall price, the marginal cost between regular and premium gas shrinks.

#3

I have noticed this too, funny how this price has been constant from God’s creation to today.

Well I don’t like to support this theory, but it seems to fit very well. Some Big-Wig somewhere, lets call him Mr. Big Oil, sets the prices in a way to max his profit without collapsing the US economy (which would diminish the value of his assets).

Now it seems like many people buy the premi-grades because they want to, not because they have to. If the price of this additive rises too much above the cost of regular gas these people will reconsider this added cost, at $0.10 / gal most people don’t even bother to think if it’s worth it, but if the price difference starts increasing, even a few cents, people will start ‘re-looking’ at this. Mr Big Oil would start loosing a very important revinue stream. By keeping the price at a constant level, Mr Big Oil sucks another $1 per fill up out of many more pockets.

This theory also would assume that the true cost of oil is very very small, including the additives to boost octain. Like something that one can just pump out of the ground, almost like water.

#4

The difference between grades is the octane rating. Higher-octane grades have different compositions of hydrocarbon components (ie formulations). These high-octane formulations are almost always more expensive to produce, thus the price difference. Why it doesn’t scale as the OP questioned…not sure.

Sometimes additives are added as well to boost the octane. Additives are chemicals, not crude oil hydrocarbons like all the other components.

Additives can be added for other reasons, like helping with engine lubrication and cleaning. I thought that putting these only in the premium grades has gone out of style, but I could be wrong. I just know that advertising campaigns don’t emphasize these like they used to… I know that some people were very suspicious about “crap” that certain brands of gasoline contain.

#5

Your theory assumes a market maker, of which there is none. The closest is Aramco, which controls about 15% of the worlds oil flows. Your theory also assumes that the “oil industy” is some monolithic entity in control of one (or a few) people. That, too, is incorrect.

#6

I’m kind of embarrassed to mention this, but I flubbed my first answer.

Additives can be used to boost octane, but most octane increases come through the refining process, not through additives.

Therefore, that’s your answer: you’re comparing two things: crude oil and gasoline. Gasoline (and octane differences) is what you get when you refine crude oil. So while the price of crude oil swings wildly, refining costs remain the same regardless of whether the oil being refined cost $10/barrel or $50/barrel.

#7

So, JohnT, the additional cost due to further refining/cracking of crude oil to get ‘premium’ or its additives has stayed the same over (at least) 10 years? And the again additional cost of refining/cracking to get super has similarly stayed the same? The fact that the prices have stayed the same might make sense, since there have been no new technologies or procedures put into place that I’m aware of. But the 10 cent/20 cent price differences still sound artificial to me.

Anyone got a link to retail gas price histories of regular/premium/super? How far back does this $0.10 price difference go? I can find lots of crude oil price links, and some regular price histories, but not for the higher octane grades.

#8

Update: talked to some folks at a Canadian refinery today…

The price of gasoline at the pumps is roughly 43% taxes, 37% crude costs, 17% Refining and Marketing, 3% profit (cite dated 2003… crude oil costs have gone up since then), so the incremental cost of producing higher grades is a contributing factor in only one part in 6 of the total.

Additives such as TEL and MMT are no longer used in Canada to boost octane.

#9

Could it be . . . and I only present this as an hypothesis . .

The cost of the extra refining was never more than say, 1 to 2 cents a gallon. The oil companies found that the market would tolerate 10 cent incremental price increases. When the price difference exceeded 10 cents the consumer would go back to the lower octane fuel which was perfectly adaquate in the first place.

Therefore, when the costs of the extra refining rose to say, 2 to 3 cents a gallon, there was still significan profit to be made without exceeding the consumer’s perceived threshold of 10 cents a gallon. Still a huge profit margin.

Again, I can’t present this a fact, only as a theory as to how the market economics might work.