On the flip side, gasoline prices usually decline between August and December (although in recent years spiraling oil prices have sometimes overwhelmed this normal seasonal decline.)
Many factors influence gasoline prices, but there are specific reasons behind the seasonal changes.
A Primer on Gasoline Blending
Last week we discussed crude oil assays and refining economics. Crude oil enters a refinery, and is processed through various units before being blended into finished products like gasoline, diesel and jet fuel.
A refinery may have a fluid catalytic cracker (FCC), an alkylate unit and a reformer, each of which produces gasoline blending components. Finished gasoline contains a number of different blendstocks produced by the refinery, which are blended to meet certain product specifications.
Two very important specifications that need to be met for each gasoline blend are the octane rating and the Reid vapor pressure (RVP). Octane rating is important for avoiding engine knocking. But the octane rating for a gasoline blend is consistent throughout the year, and is not the reason for the seasonal price fluctuations.
The RVP spec, however, does change with the seasons and this change can have a major effect on the price of fuel. The RVP is based on a test that measures vapor pressure of the gasoline blend at 100 degrees F.
Normal atmospheric pressure varies with location, but averages about 14.7 lbs per square inch (psi) at sea level. Atmospheric pressure is caused by the weight of the ocean of air pressing down on us. If a liquid has a vapor pressure greater than atmospheric pressure, that liquid boils. For example, when you heat a pan of water the vapor pressure increases until it reaches local atmospheric pressure. At that point the water begins to boil. (In the mountains where the atmospheric pressure is lower, water boils at a lower temperature.)
In the summer, when temperatures can exceed 100 degrees F in many locations, it is important that the RVP of gasoline be well below 14.7 psi. Otherwise, the fuel may build pressure in fuel tanks and gas cans, and it can boil off lighter components in open containers. Gas that is vaporized ends up in the atmosphere and contributes to air pollution.
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.
The EPA publishes a schedule for the RVP transition. The schedule varies somewhat from region to region, but in general is as follows:
After allowing vapor pressures as high as 15 psi in the winter, the limit drops starting on May 1:
May: 9.0 psi
June – Sept: 15: 7/7.8 psi
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.
One of the disadvantages of having different requirements for different areas is that summer gasoline is less fungible. This can cause regional price imbalances, preventing product from flowing from one area into another to ease a shortage. This was a major factor contributing to California’s gasoline price spikes last fall (which I covered in Who Benefits from California’s Gasoline Crisis?)
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 the stricter requirements. One reason the “summer blend” is costlier to produce is because it contains less butane.
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 volume 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.
Bear in mind that sharp changes in the price of oil can mask the seasonal change. If oil prices were to rise heading into fall, then gasoline prices might not decline. This has happened a few times in recent years. Or, less likely, oil prices might decline enough in the spring to cause gas prices to fall ahead of the summer driving season.
Unfortunately, motorists can’t save money by buying cheaper gasoline in the winter and storing it for later use. Remember that winter gasoline will pressure up as the weather heats up, and the butane in the mixture will start to evaporate. You will end up with less gasoline than you paid for, and would also end up contributing to the air pollution problem that summer gasoline restrictions aim to avoid.
If, on the other hand, you try to use summer gasoline in winter, the fuel may prove difficult to ignite because of the lower vapor pressure. This would be like putting a little bit of diesel in your gasoline — not very good for your car.
So that’s the story of why gasoline prices generally spring forward in the spring and fall back in the fall. It’s not a clockwork change, but an important one nonetheless to keep in mind when tracking fuel prices.
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Great article on why gas prices fluctuate seasonally. My question is, if we could maintain a constant pressure in our car and truck gas tanks to equal the ambient pressure, could we then sell a gas with one RVP year-round? Thank you.
I am a long time subscriber to Utility Forecaster and in the oil business in the Permian Basin of West Texas. Full disclosure: I am also a Longhorn. As much as it pains me to admit this, hiring an Aggie engineer as Editor of The Energy Strategist was a smart addition. In my opinion, all of your articles on the oil and gas business have been right on the money.
Thank you for letting us know that butane sells for a dollar a gallon. Maybe we need to set up a bunch of carburation plants like they have down in Mexico to convert vehicles from running on gas to running on propane or butane. For decades migrant workers coming up here to Idaho from Mexico have referred to propane tanks as “botas de butano.” Why can’t we more readily buy butane here just as we do propane? I know that at 30 degrees Fahrenheit butane is a liquid just as propane is at 40 below (how convenient that Fahrenheit and centigrade or celsius are all the same at that temperature. A quarter century ago when I was ruin college somebody mentioned that at one location somebody was running an irrigation pump off of a tank of propane. Maybe we will have to follow suit. Thanks
I apologize, they were running an irrigation pump off a tank of butane. Thanks.