3 Ways to Explain Fluctuating Fuel Prices to Customers
Brought to you by Source North America.
Some of the most common questions customers ask convenience store operators concern fuel prices. For instance: What, exactly, causes gasoline prices to increase every spring? Why are gas prices higher in some areas than others?
Here are answers to three frequently asked questions regarding the topic.
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1. Why do gasoline prices fluctuate so frequently?
The cost of crude oil, which is the basis for refined petroleum products, is largely determined by global supply and demand fluctuations. This cost is the primary factor that influences the price of retail gasoline year-round.
Refinery costs, which also fluctuate throughout the year, represent another expense that impacts gasoline prices. Gasoline is blended differently in the summer to reduce the amount of smog-creating pollutants that enter the environment through fuel. The production costs to blend gasoline for fueling from June 1 to September 15 are higher than for fuel blends sold at other times of the year. As a result, the price at the pump increases. Refineries must produce close to 15 fuels to meet various state and regional requirements for summertime fueling. In contrast, refineries only need to produce a few winter blends. In addition, U.S. refineries often conduct maintenance in the spring. This can lead to reduced gasoline production and a decrease in supply, which results in higher prices.
2. Why are gas prices higher in some areas of the country than others?
The finished motor gasoline that is distributed across the United States is blended differently depending not only on the time of year but also on where it is being sold. Areas of the country with unacceptable levels of smog are required by the U.S. Environmental Protection Agency to sell gasoline blends that limit the amount of “volatile organic compounds” (VOCs) that are emitted into the environment. In addition, some states and localities add fuel taxes to the price of gasoline above and beyond the federal gas tax. Finally, gasoline prices tend to be higher the further the gasoline has to travel to get to the station.
3. What is reformulated gasoline and how does it affect the price at the pump?
Reformulated gasoline, also known as RFG, is blended to meet the EPA’s most stringent ozone emissions standards and is different from a “summer blend.” RFG is a blend of gasoline that is required to be sold all year long at gas stations in regions with the worst smog (usually those located in metropolitan areas). In contrast, stations that sell summer blends are only required to sell them during the summer. The production costs to blend RFG are higher than the costs to blend conventional gasoline, so the price is affected accordingly.
To learn more about fuel blends, including a deeper explanation about RFG requirements and the role Reid vapor pressure plays, please visit www.sourcena.com/sourceline-news-insights/.