Ever since the globe began awakening from its COVID-19 slumber, the price of energy, including that of gasoline, has risen to great heights. Now, it seems as though premium gasoline will be getting unproportionally more expensive as compared to its lower-octane counterparts.
According to a report from Bloomberg, the reasoning behind is unfortunate phenomena is related to several different aspects, including the Russian-Ukrainian war, U.S. environmental regulations, and a lack of refining capability. The report specifically points to U.S. regulations as the main culprit behind rising premium prices.
More specially, it comes down to octane levels. The U.S. “Tier 3” environmental regulations, which came into effect in 2017, require lower sulfur content in gas, which makes it difficult to maintain a high octane concentration. In order to stay in compliance with these regulations, gas corporations need to perform more stringent refining processes on the gasoline, which results in lower octane levels. While gas prices plummeted during 2020 due to lowered demand from the COVID-19 pandemic, the rebound in demand has since made it clear how drastic the difference in price between regular and premium gasoline really is.
“Meeting lower sulfur requirements comes at the expense of octane levels, which likely contributed to soaring prices for high octane blending components,” Bank of America Corporation analysts were quoted as saying. “This dynamic should continue in 2023 and may lead to similar explosive upside in gasoline prices this summer.”
A smaller piece in this dynamic relationship is related to refining capacities. Gas corporations lowered their output during 2020 due to the lower levels of demand. However, they have not reached fully capability yet, and due to this factor, there simply aren’t enough refineries online that are capable of raising octane levels. That being said, this may change later this year, as production continues to ramp back up to pre-pandemic levels.
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