Pain At The Pump For Luxury Car Owners

by Categorized: Business, Consumer Affairs, Data Date:

Retail gas prices in the region have been cut in half since 2011, but a degree of pain persists for one class of drivers: those with high-end cars that require high-octane fuel.

If you luxury-car drivers feel like you’ve been paying an extra premium for premium fuel lately, you’re right. Data from the U.S. Energy Information Administration PremiumGasshow that the price gap between regular unleaded and super unleaded has soared in the past year – the result, experts say, of tight competition for regular gas and costlier processing for the high-end stuff.

For most of the last decade, as the chart below shows, premium fuel was 7 or 8 percent more expensive than regular. But the gap began rising sharply in mid-2014. After a dip in early 2015, the gap skyrocketed, rising from a 12-percent surcharge last June to nearly 31 percent on Monday.

That translates to an extra 55 cents a gallon for premium unleaded today, more than twice the extra cost for most of the decade, even when fuel prices were far higher. And at some stations, the surcharge is far higher. At one West Hartford Shell station, premium users this week were paying an extra 90 cents a gallon – a 47-percent bump – for super unleaded. That’s an extra $25 every time a Lincoln Navigator owner fills up.

Why the big gap? Part of the explanation is the hyper-competitive market for regular gas, which makes up the vast majority of a typical service station’s sales. That’s the price most prominently featured on the giant lighted signs at gas stations, and it generates the thinnest profit margins as stations compete for price-conscious consumers. But drivers of pricier cars with more demanding engines tend to be less price-conscious and make for welcome targets as gas station owners look to make up for thin margins on regular gas.

“Stations find competitive benefits in dropping regular prices as a way to attract customers,” AAA reported in response to questions about gas prices. “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.”

At the same time, even with the hefty surcharge, some regular-unleaded users are splurging, since even the inflated prices for high-octane gas are far lower than the prices charged for regular gas just months ago. The current average price for premium gas in New England – about $2.32 a gallon – is 45 cents a gallon cheaper than customers were paying for regular gas last June. As regular-gas users treat themselves to high-test, that changes the supply/demand equation.

And some experts also say that boosting the octane of the raw fuel delivered to stations has become more expensive, particularly as the formulation of North American shale oil – the fuel currently in abundant supply – is better suited to regular unleaded than super. “As a result,” according to AAA, “supplies of regular gasoline have remained more plentiful than premium.” And that, too, changes the supply/demand equation.

But there may be relief on the way. AAA reports that historically, the price gap between regular and premium gas is at its highest in the winter. “In the summer,” the association reports, “the spread between regular and premium is at its closest.”

And summer is a mere 111 days away.PremiumGas

 

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