Gas Price Spread: Regular vs Premium

[zippy2020]

...Reminder, if your car's manual does not state that you need Premium, there is no benefit in using it. It isn't 'better', it's just different in a way that only helps if the engine is designed for it. If not, it's just a waste.-ERD50

True....however, I would remind other folks that it is recommended to check your owner's manual and find out what octane level is needed for your vehicle.

" If you use a lower than recommended level, the gas may combust too fast for your engine. That can cause the engine to make a knocking noise. In addition to this unwanted noise, a lower than recommended gas can also reduce your car’s power and fuel economy and cause engine damage. "
https://www.communitysure.com/blog/understanding-premium-vs-regular-gas/

To answer the OP's question, the difference in the San Francisco Bay Area averages 30 cents between regular and premium. We don't drive much so no big change in our monthly gas bills now that we have an SUV that takes premium-only.

 

[jazz4cash]

C



I just can't believe the price spread and how it has increased over the years.

Agreed. I’ve lived my life oblivious to the cost of premium. I thought it was ~.25 more since I recall several friends that used premium because they wanted to pamper their cars, but not at these prices!

I took a trip in a friend’s car last year that required premium. It was an eye opener. Around here people go nuts to save a penny or two/gallon but we have LOTS of luxury cars that require premium. Looking on Gas Buddy here in the DC suburbs
Regular
3.22-3.79

Premium
3.80-4.67

Spread
.58-.88

Some new cars ‘recommend’ premium but have technology to adjust ignition timing if regular is used instead.

 

[tfudtuckerpucker]

True....however, I would remind other folks that it is recommended to check your owner's manual and find out what octane level is needed for your vehicle.

" If you use a lower than recommended level, the gas may combust too fast for your engine. That can cause the engine to make a knocking noise. In addition to this unwanted noise, a lower than recommended gas can also reduce your car’s power and fuel economy and cause engine damage. "
https://www.communitysure.com/blog/understanding-premium-vs-regular-gas/

To answer the OP's question, the difference in the San Francisco Bay Area averages 30 cents between regular and premium. We don't drive much so no big change in our monthly gas bills now that we have an SUV that takes premium-only.

Most modern cars have "knock sensors" and other sensors, to prevent knocking. If your car recommends premium gas, and you use a lower grade of gas, the engine will sense the knocking, and retard the ignition. This lowers both power and gas mileage, which will eat up any savings from using lower octane gas. Engines should never knock- this can damage your engine.

 

[Montecfo]

^^^ it would be hard for mileage to suffer enough to eat through the savings versus the huge premiums for premium.

That is certainly not anything I have experienced.

But certainly if you car requires premium you will want to run it.

 

[audreyh1]

The TX state legislature just passed a bill to add a flat $200 to the annual registration fee for EVs (not hybrids). It goes into effect on Sept 1.

Guess I’m lucky I got through two registrations already.

 

[REWahoo]

Guess I’m lucky I got through two registrations already.

Same here. I'll have to pay it in August of 2024 when my initial two year registration expires.

Since we also own a hybrid, I suppose I should be happy the state didn't also add a fee to their registration. At least one bill was introduced to do so but thankfully it never got out of committee.

 

[38Chevy454]

Seems that my observations are pretty close to what many of you are also seeing. Just as a note, with all of the turbocharged or supercharged cars out now, many of them do require the higher octane. They might be able to compensate and run on the lower octane, but at lower power and not at best efficiency. Better to just pay that premium fuel cost and have it run as designed.

I still think the added surcharge for premium is more due to profit taking than actual materials cost. Yes there is some added materials cost, but my guess is in the $.30-.40/gal cost at the most.

 

[ncbill]

I'd pay the premium for a hybrid powertrain before buying a vehicle with a turbo/supercharged engine.

 

[Car-Guy]

I just got back home from a day of running around here in Central/East Texas... I saw regular for 2.89 to 3.05... Diesel about the same as regular and premium was about 30 cents more.

 

[Still Learning]

Lower Hudson Valley about 65 miles north of New York City regular is $3.47, mid-grade $.4.00 and premium is $4.60 a gallon. Thankfully our vehicles including the camper van run on regular.

 

[statsman]

If the higher price is state taxes that are per gallon rather than per $, that would explain a smaller spread (the gas price is a lower % of the total price).

edit - well, I guess that would still explain a % change, the fixed delta would be the same? Example:

$3 reg $4 premium,

add $1 in tax:

$4 reg $5 premium - same fixed delta

-ERD50

Not really what I was referring to. I should have used an example.

Take two states with some of the higher costs of Regular gas, Washington and California. Here are the following Regular gas prices, with the spread from Regular to Mid-Range, and then Mid-Grade to Premium, in costs at the pump:

Washington: $4.60/gal; +$0.18/gal; +$0.21/gal
California: $4.87/gal; +$0.20/gal; +$0.16/gal

Now, here are the same numbers for Tennessee and Texas:

Tennessee: $3.22/gal; +$0.38/gal; +$0.36/gal
Texas: :$3.17/gal; +$0.37/gal; +$0.34/gal

I guess my point is while states like Tennessee and Texas have a good deal lower prices on Regular gas than states like Washington and California, the actual cost increase to the next two grades is generally higher in the states with lower Regular gas prices. In this specific example, roughly double.

Actually, in terms of percent deltas, if some of the difference were related to individual state taxes, then the deltas are even worse in the states with lower Regular gas prices.

 

[Gearhead Jim]

A retired oil company executive told me a few years ago that the extra cost to produce Premium over Regular was about 20-30 cents per gallon. The higher price is just "because we can get away with it".

More recently he said that the more advanced computing power in current engines, combined with ever-increasing mileage standards, has resulted in engines that have advanced the ignition timing so much that they are always running on the edge of detonation even at low cruising power. In the old days running Regular at higher altitudes or during gentle cruising was very safe. Today, you may be betting your engine that the knock sensors will do their job every time. Today, he doesn't recommend running less than recommended octane at any time or altitude.

 

[ERD50]

A retired oil company executive told me a few years ago that the extra cost to produce Premium over Regular was about 20-30 cents per gallon. The higher price is just "because we can get away with it". ...

Isn't that also called "the free market"?

Pretty much every sale is based on "the highest price we can get away with", and pretty much every purchase is based on "the lowest price we can get away with". Just look at this thread:

https://www.early-retirement.org/fo...te-of-blow-that-dough-115254.html#post2929498

Everyone looking for the lowest price/ best value (as it should be).

Also, a 20-30 cent cost also needs to show a profit, so expect something on top of cost.

-ERD50

 

[madatrub]

Spreads are a function of market forces, like everything else. In some parts of the country, higher octane is harder to come by because refineries are undercutting gasoline for diesel spreads. In other parts, there are refineries that are more geared to gasoline production.

Texas/Midwest refineries are a good example of this. Most run their crude towers at pretty low temperatures to get every last drop of material into the Distillate pool. West/East Coast refineries are generally heavier gasoline producers (although refining on the east coast has taken a huge hit in the last 10 years).

(Been in the oil industry for going on 3 decades)

 

[CaptTom]

...Pretty much every sale is based on "the highest price we can get away with", and pretty much every purchase is based on "the lowest price we can get away with"...

...Everyone looking for the lowest price/ best value (as it should be).

Also, a 20-30 cent cost also needs to show a profit, so expect something on top of cost.

You're right, of course. But there's something here that goes beyond pure market forces and into the human psyche.

Simply put, some people want to pay more. I live in a high COL town. In my younger days I briefly worked at a gas station here. Customers would compete to out-spend each other. If the car at one pump was buying premium, the car across the way would ask for premium, plus our most expensive can of additive.

Retailers would be foolish not to cater to this BTD crowd. There are also those who believe that premium fuel is somehow "better" even if their car doesn't need it. I'm all for conning those suckers out of every possible penny.

That said, the retailers don't need to increase their profit just because the cost of the product is higher. The premium pump doesn't cost any more to run than the regular pump. But again, they'd be foolish not to if they can get away with it. Sell the people what they want.

 

[ERD50]

Y .... That said, the retailers don't need to increase their profit just because the cost of the product is higher. The premium pump doesn't cost any more to run than the regular pump. .... .

Not exactly. If their cost is 30 cents per gallon more, and the gross margin on gasoline is (picking a number out of my hat ) 25%, they need to charge an extra 25% on top of the 30 cents to maintain their gross margins.

I recall running into this with a supplier to our MegaCorp. This supplier was building up some of their proprietary equipment to our specification. We wanted them to add a generic component from one of their suppliers, because it just worked out better if they included it in their assembly, than for us to install it afterwards. So we told them just charge us the extra cost of the included component (labor charges were almost zero). He came back and said his boss wouldn't allow it, because by not marking it up, their gross margin would fall. Everything has costs associated with it, maybe even just the cost of money to support the inventory of that extra 30 cents.

-ERD50

 

[Koolau]

Out of curiosity, I checked the nationwide spread between regular and premium. The last column shows the % difference.

On a related note, I've been watching the nationwide gas prices. Here's a map.
Note that Washington state is now competing with California for the highest gas prices. Washington just added a "carbon tax", so it's a tax on the providers- not a direct tax, but still is reflected in the high gas prices. Note that Pennsylvania has the highest gas tax, yet not the highest gas prices.

Thanks for the data. Looks like we are just about as high as California - but not quite.

I had noticed that the spread between regular and premium is usually fairly small on the Island - maybe $0.025 per grade increase (so around 50 cents extra for the highest grade.)

I suspect that is because we import crude oil and refine it on Island. The refinery has some latitude on how much of each grade they produce, so I suspect they can pretty much provide just about enough of each grade and keep the (relatively high premium prices) in hand. Plus, our driving is pretty much stable (or at least predictable) as the mix of cars is stable.

Since most cars which require premium will run on regular (albeit with lower performance and gas mileage), the frugal among us probably switch to regular if premium gets too high. On our Island, there's little storage for anything - especially unused premium, so Voilà! Prices and supply are relatively stable - until they aren't (disruption in tanker shipments or world wide crude oil prices being the typical drivers.)

 

[CaptTom]

Not exactly. If their cost is 30 cents per gallon more, and the gross margin on gasoline is (picking a number out of my hat ) 25%, they need to charge an extra 25% on top of the 30 cents to maintain their gross margins...

I can see the argument that they are just keeping the margin the same. That's certainly simpler for accounting purposes.

But they don't have to base their pricing on margins. They could come up with a per-gallon markup which covers their cost of product, labor, facilities, utilities, regulatory requirements, etc. Then it wouldn't matter which blend they sold. The same mark-up would apply to all.

Reality is probably some combination of these methods. But I have no doubt that one consideration is an evaluation of what the market will bear. I still contend that the "premium" market attracts a certain BTD mentality which justifies the merchant charging much more than the simple economics would suggest.

In other words, there is a "because we can" element factored into the premium price.

I think that's great. Let those who prefer to pay more do so. It'll keep the prices lower for the rest of us.

 

[Popeye]

I can see the argument that they are just keeping the margin the same. That's certainly simpler for accounting purposes.

But they don't have to base their pricing on margins. They could come up with a per-gallon markup which covers their cost of product, labor, facilities, utilities, regulatory requirements, etc. Then it wouldn't matter which blend they sold. The same mark-up would apply to all.

Reality is probably some combination of these methods. But I have no doubt that one consideration is an evaluation of what the market will bear. I still contend that the "premium" market attracts a certain BTD mentality which justifies the merchant charging much more than the simple economics would suggest.

In other words, there is a "because we can" element factored into the premium price.

I think that's great. Let those who prefer to pay more do so. It'll keep the prices lower for the rest of us.

Of course it is a combination. There’s no rule that says all your products should have the same margins. They call it premium so they can charge more and at higher margins. That’s how pricing works. (Full disclosure, I set a lot of prices for a lot of years! And it’s not always based on an equation!)

 

[Trailwalker]

The premium gas around here is the stuff that doesn't have ethanol. I use the premium for lawn mower engines, generators etc, based upon friends' advice who know more than I do.

 

[Popeye]

I use the premium grade for the turbo 4 cylinder. The spread I like is the spread at the sams club station. That’s saving me 50 to 70 cents per gallon now.

 

[CaptTom]

The only place we can buy ethanol-free gas around here is the airport, and that comes with its own issues, and costs.

I buy the canned fuel at the big-box stores. Sure, it's $15-$20 per gallon, but for the small amounts I use in the chain saw, or for the last tankful in the lawn mower at the end of the season, it's worth it. I would buy premium gas at the pump for this if it were ethanol-free.

Back to the economics, consider that a lot of people will buy regular gas from whichever station has the lowest price. In other words, there is competition. This gives stations a strong incentive to keep the price low on regular gas.

Now consider premium. Very few drivers truly need to pay more for this. So the average premium customer is paying extra because they want to. The station doesn't have to worry as much about what the competition is charging. They would be foolish not to charge more to customers who want to pay more.