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Why Premium-Fuel Sales Are Up

Two factors are spurring up a demand revival for high-end gasoline

CHICAGO -- Premium-grade gasoline is experiencing a demand revival.

From the oil-price crash in second-half 2014 through 2016, sales of premium gasoline jumped 20% to hit 43 million gallons per day, according to data from the U.S. Energy Information Administration (EIA), reported by Bloomberg. In June 2017, premium sales hit their highest point since December 2003, although they fell slightly the following month. And premium’s share of total gasoline sales reached a high of almost 12% in August 2016, its highest point since 2004.

Istvan Kapitany, executive vice president of retail for Royal Dutch Shell, London, told Bloomberg that the major oil has seen 15% growth in premium sales in the last year.

And pump prices are reflecting the strong demand, with the spread between regular- and premium-grade fuel stretching to 50 cents per gallon in late 2016, according to the EIA. This equates to an $8 to $13 difference per fill-up. The spread, which has stayed around that level for much of 2017, has been on an upward trend since 2000. 

A couple of factors are heating up demand for premium:

  1. Sales of luxury cars have increased, up more than 8% from 2006 to 2016, per Edmunds.com. Luxury models made up 11.9% of the U.S. vehicle fleet in August.
  2. Meanwhile, automakers are introducing more vehicles with smaller, turbocharged engines that run on higher-octane fuel to help meet toughening Corporate Average Fuel Economy (CAFE) standards. Tom Kloza, global head of energy analysis for Oil Price Information Service, Gaithersburg, Md., told Bloomberg that an estimated 30% of U.S. vehicles will require premium-grade gasoline as fuel-efficiency standards ramp up.

“There’s a bright future for higher-octane gasoline, but most of the consumption will come thanks to the requirements of high-compression engines as opposed to a natural move by consumers,” said Kloza.

Only 11% of vehicles in the United States are required to run on premium-grade fuel. However, some consumers use it in vehicles that are designed to run on regular-grade gasoline under the mistaken assumption that they are “treating” the car, at a time when lower fuel prices make it relatively more affordable. A 2016 study by AAA estimated that these consumers waste a combined $2.1 billion each year.

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