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Is premium gasoline pricier than it should be?


For years, the spread between regular gasoline and premium gasoline has been about 20 cents a gallon. But as prices for regular have dropped sharply in the past six months, the gap has increased.

Last week, the difference between the two fuels was 64 cents in Palm Beach County and 49 cents on average in the U.S., AAA’s Fuel Gauge Report showed. A year ago, the price spread in Palm Beach County was only 48 cents.

Gordon Brossell of Jupiter, who uses premium in his 2016 Mustang GT, calls the price gap “obscene,” and says stations are “gouging the hell” out of those whose vehicles are made to run on premium 91 to 93 octane fuels. He’s seen price spreads as wide as $1.50 at stations on Okeechobee Boulevard in West Palm Beach.

Brossell’s belief that gas stations are offering regular at super-low prices and boosting their profits on premium is backed up by experts. Owners of high-performance cars that require high octane fuels aren’t as price-sensitive and are likely to have higher incomes, and gasoline sellers know that.

“Stations have found that customers buying regular are much more price-conscious than customers buying premium. In many ways this makes sense — premium is pricier than regular and generally goes in more expensive cars,” said AAA spokesman Mark Jenkins.

“The reality is that many premium customers will continue to shop at the same station regardless as to whether the price is dropping as fast as regular,” Jenkins said.

The vast majority of motorists buy regular gasoline, so the industry is geared toward selling it as efficiently as possible. Economies of scale have emerged that have made regular gas even cheaper than premium, Jenkins said. It’s also cheaper to refine the lighter shale oil produced in the U.S. into regular gas, thus supplies have remained more plentiful than premium.

It hasn’t been so much that premium became more expensive, but that regular became cheaper, said John Eichberger, executive director at the Fuels Institute, a nonprofit research-oriented think tank founded by the National Association of Convenience Stores

Gas station owners may view premium as a way to make up for the competitive nature of regular gasoline sales.

“I’ve got 80 to 83 percent of my volume as regular unleaded, so I need to be viscous on price. My premium customer doesn’t really take time to shop around, so I can possibly make up some of my lost margins,” Eichberger said.

As gas prices declined in the latter half of 2015, premium has made a slight comeback, said Jeff Lenard, spokesman for the National Association of Convenience Stores.

For years, premium accounted for 10 percent of gasoline sales, and recently it grew to 11 percent, which amounts to a 10 percent increase. Mid-grade fuels make up only 3 percent of the market and are continuing to decline, Lenard said.

The logical explanation is that as gas prices fell, some consumers who were using regular switched back to premium.

“They were rewarding their tanks,” Lenard said.

He added that “there is an emotional component with gas prices that doesn’t exist for other products.”

“Two-thirds of customers will drive five minutes out of their way to save 5 cents a gallon, 60 cents on a fill-up,” he said. “The presumption has long been there is slightly less of an emotional component with higher blends.”

Competition, or lack thereof, could be another factor.

“When there is less competition, there is less incentive to be ultra-competitive. Factor that in with the added wholesale cost of premium. Because of the drop in premium demand over the years, it cost more per gallon to make it,” Lenard said. “Ironically as premium falls in demand, it gets more pricey for those who still use it.”

As for Brossell, he says he’s not grousing about having to pay more to fuel his car, but he says it’s clear that some stations are boosting their profits on premium gas.

“They are asking drivers like me to subsidize the drivers of regular-gas vehicles by engineering huge profit margins on the one hand to offset much lower margins on the other — a glowing testament to American business greed,” Brossell said.



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