U.S. Drivers Avoid Premium Gsoline to Cut Costs
Janet McGurty 07/14/2006 5:50 pm
NEW YORK (Reuters) - As gasoline prices reach record highs, U.S. drivers are shunning premium grades when filling up their cars, unwilling to pay as much as 20 cents more per gallon for the higher octane.
As the price of crude oil flirts with $80 a barrel, the price of gasoline is rising accordingly. For the week ended July 10, a gallon of conventional gasoline averaged $2.973 -- about 7 cents higher than last year. Conventional premium was $3.09 a gallon.
"Sales of premium and mid-grade have declined over the past few years as consumers trade down octane levels when prices increase," said Jeff Lenard, a spokesman for National Association of Convenience Stores, an industry group representing convenience stores where three out of every four gallons of gasoline is sold.
In April 2006, U.S. gasoline retail deliveries of premium grade were 4.9 million gallons per day, or about 8.2 percent of all gasoline sold. This is less than half of the almost 20 percent of market share it had in 1983 when 5.7 million gallons per day sold.
Conversely, sales of regular gasoline rose in the same period, from 22.4 million gallons per day in April 1983 to almost 49.0 million in April, 2006, according to EIA figures.
As a result, oil traders report that V grade -- as premium is known in trade parlance -- is not actively traded. Thus, the market is dominated by large refiners who make just enough to fill their requirements, which is part of the reason why it is so expensive.
"Premium is the unwanted stepchild," said one Gulf coast oil broker. "It used to be a decently traded barrel but since we have done away with MTBE and the advent of F grade and going to ethanol it's traded a lot less."
The ban by several states on MTBE, a suspected carcinogen which can seep into groundwater, has made ethanol the additive of choice to make reformulated gasoline meet clean air requirements.
Drivers in cities or areas where air quality is an issue, pay even more for this reformulated blend.
Regular reformulated gasoline averaged $3.106 as of July 10 while reformulated premium was $3.307 a gallon, according to government data.
F grade -- also know as reformulated blendstock for oxygenate blending or RBOB -- meets the clean air requirements in clear air attainment areas but requires expensive blending components to finish it up.
While drivers are getting more price sensitive at the pumps, they are not cutting back on overall gasoline purchases. Data for the four weeks ending July 7, 2006 shows that gasoline demand averaged 1.7 percent over the same period last year.
"Consumers will do everything but stop buying gas. They will use plastic to delay the pain, they will trade down in their octane preferences. Sometimes that is just temporary, but we always lose some," said Lenard.
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