Increases in the price of gasoline during the spring and summer months are typical. As we enter this time of year, we explain the factors that account for these annual price hikes to better educate energy consumers on gas pump prices in the United States.
Seasonal transition affects prices in spring
Gasoline prices in the spring and summer typically increase when the scheduled supply shifts to summer blends. Refiners operate on a May 1st deadline to switch production from a winter blend of gasoline to a summer blend of gasoline, commonly referred to as reformulated gasoline, which requires extensive maintenance and slowdowns in production to ensure refiners are separating out the different types of oil. Winter and summer blends are different as it pertains to their octane rating and the Reid vapor pressure (RVP).
The U.S. Environmental Protection Agency, as part of the Clean Air Act of 1990, requires refineries to supply cleaner-burning fuel in major metropolitan areas to order to reduce smog and ozone pollution during the hotter summer months as gasoline can evaporate too quickly. Based on pressure and temperatures, depending on where the gasoline is going, the fuel blend could change. This is meant to reduce pollution in cities based on their annual summer high temperatures. So Minnesota’s blend might have a higher psi than say, Arizona.
Summer blends are also more expensive because they contain less butane. Reformulated gasoline is also more expensive to refine at about 2 to 4 cents per gallon, and is less efficient than the blend of its winter counterpart. This means that drivers burn more gas to travel the same number of miles – all things being equal with vehicle maintenance – which creates increased demand for oil and moves market prices up.
Global demand is increasing
International demand for petroleum plays a significant role, as 70% of the cost of a gallon of regular gasoline last month was attributed to the cost that refiners paid for a barrel of crude oil. Global demand for oil is projected to increase in large part due to the strengthening economies of newly industrialized nations around the world.
Political events influence pricing
Because crude oil is a traded commodity in international markets, its price per barrel is subject to a number of factors, including geopolitical events and developments in the countries where oil is abundantly produced, such as Russia, Venezuela, and the Middle East. Continued developments in these oil-producing regions could continue to influence an increase in the price of a barrel of oil. Even if tensions in Russia and the Ukraine decrease, the Houti conflict in Yemen could spur new market uneasiness. That is why across the news you’ve likely heard of increasing production here at home on Federal Lands and from more stable energy producers – notably Canada – that could help prevent prices from spiking in response to events in Ukraine and Yemen in the future.
Year-round factors in addition to supply and demand affect prices. For example, refiners must account for their overhead and profits, as do distributors and retailers. And there are, of course, federal and state excise taxes. In Februrary, taxes accounted for 14%, or nearly 50 cents for every gallon of regular gasoline dispensed in consumers’ tanks, according to the U.S. Energy Information Administration (EIA).
The good news
Domestic production of oil and natural gas here at home can help keep energy prices relatively stable in the long-term, as more of these developed energy resources are introduced to national and regional energy markets. This growth is one of many reasons why CEA supports an “all-of-the-above” energy policy strategy that supports American jobs, creates economic opportunities and protects American energy consumers.