Tuesday, May 08, 2007

Annual Spring Gas Price Increases

From Reason Magazine, an explanation of how EPA requirements contribute to an annual spring increase in gasoline prices:

Let's consider the effect of EPA vapor pressure mandates on the price of gasoline. Energy Security Analysis Inc. senior consultant Mark Routt analogizes vapor pressure in gasoline to fizziness in soda pop. In the winter more fizziness (high vapor pressure) means that when you turn the ignition on a cold morning it sparks the gasoline and your car starts. However, in the summer you want "flatter" gasoline (less vapor pressure) because fizzier gasoline evaporates on hot days and contributes to smog. While EPA regulations help reduce smog, they also make it more costly to produce gasoline with lower vapor pressure. Lundberg estimates that summer blends can cost between 3 to 15 cents more to make than winter blends, depending on the exact formulation, time and place.

In addition, Routt pointed out that the regulations have produced several distribution bottlenecks that temporarily boost prices in the spring. "Everybody jams the exit at the same time," explains Routt. What he means is that gas station owners have essentially one week to switch from a winter blend to a summer blend. So in order to get their supplies in a timely manner they end up paying a premium of 8 to 12 cents per gallon to distributors and tank truckers.


In contrast, in the fall, retailers can switch over a period of weeks from a summer blend to a winter blend and so price spikes don't typically occur in the fall. Routt suggests that the EPA relax its vapor pressure regulations allowing retailers to more slowly switch to summer blends. However, he doubts that this policy could ever be adopted since it would characterized by activists as "an attack on the environment."

MP: Notice in the price chart above that there was an increase in gasoline prices last year about the same time as the price increase this year.

4 Comments:

At 5/08/2007 4:25 PM, Blogger hopeforusall said...

I'm sorry, I just don't buy the price rise excuses anymore. The oil companies have been spouting propoganda tales to the public and the politicians. Can someone tell me why the price of diesel fuel has outpaced even premium gasoline prices for God knows how long now. I can tell you why...just because the oil companies CAN...What are we going to do about it. This inequity in fuel pricing is part of the oil companies record profits.

Arin

 
At 5/09/2007 12:25 AM, Anonymous Anonymous said...

hmm, what? If as has been stated, if they can charge whatever they want then why only charge $3? Why not charge $4, it would increase profits 1000%, what are we going to do about it?

Oh, that's right; Exxon can make even higher record profits if it charges less than Chevron for Diesel and steals all their customers. If you don't sell anything then you make no profits.

 
At 5/09/2007 7:17 AM, Anonymous Walt G. said...

hopeforusall,

Diesel fuel and gasoline have two distinct markets.

Diesel fuel is an industrial product used in power plants to generate electricity worldwide and competes with the heavy transportation market (locomotives, ships, trucks . . .).

Gasoline is primarily a car transportation product.

The best thing people can do to increase supply is to lower the demand by driving less. Surprisingly, that has not happened yet.

 
At 5/09/2007 12:39 PM, Blogger hopeforusall said...

I, absolutely agree with you Walt G. I for one have curtailed driving considerably out of necessity. I purchased my diesel truck back when fuel prices were relatively low compared to gasoline. Boy they really stuck it to us after all the tax deductions got a lot of people to purchase diesel vehicles.

 

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