Why Gas Prices Rise Nearly Every Spring

Therefore, the Environmental Protection Agency (EPA) has declared that summer gasoline blends may not exceed 7.8 psi in some locations, and 9.0 psi in others. The particulars vary, but key considerations are the altitude and motor vehicle density of a specific location.

More congested areas and hotter areas will tend to have a limit of 7.0 psi, while cooler climates are generally allowed to be slightly higher at 7.8 psi. Some areas, however, maintain a 9.0 psi limit throughout the summer.

Refiners will start to pull down their inventory of winter gasoline well in advance of the May 1 deadline. On that date, all gasoline in the system has to meet stricter requirements. One reason the “summer blend” is costlier to produce is because it contains less butane.

Butane and Gasoline

Butane, which has an RVP of 52 psi, can be blended into gasoline in higher proportions in the winter because the vapor pressure allowance is higher. A typical winter gasoline blend may contain 10% butane, but the butane fraction drops to 2% or lower in the summer.

Butane is a cheaper blending component than most. Presently, the spot price of butane is around $1/gallon lower than for finished gasoline. The higher butane allowance in winter means that winter gasoline is cheaper to produce.

But butane also adds to the total gasoline pool and its lower allowance in the spring comes at exactly the wrong time for consumers: Supply is restricted just before summer driving boosts demand – which generally results in higher gasoline prices.

Butane is then added back to the system in greater volumes in the fall: on Sept. 15 the RVP allowance starts to increase, and in some areas the allowed RVP eventually increases to 15 psi. So in this case we see higher supplies just when demand is falling. It shouldn’t come as a surprise then that gasoline prices typically decline in the fall.

During election years, this pattern spawns lazy conspiracy theories, as people imagine the gasoline price drop is engineered for political ends. But the pattern is there in most non-election years as well, regardless of the political party in power.

View single page >> |

Follow Robert Rapier on Twitter more

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.