Photographer: Ty Wright/Bloomberg

Shale Stings High-Rolling Drivers as Premium Fuel Gets Pricey

  • U.S. high-octane gasoline sells for 50 cents more than regular
  • Premium gasoline sales gain 13% even with higher price gap

The U.S. shale boom is taking its revenge on the 1 percent.

Oil and natural gas gushing out of fields from Pennsylvania to North Dakota are flooding the U.S. with the low-octane stuff that goes into regular gasoline used in the Ford Focuses of the world, dropping prices at the pump for most drivers to the lowest autumn level in nine years.

At the same time, additives that enhance gasoline into premium fuel designed for the high-performance engines in BMWs and Ford Mustangs haven’t become any easier to come by. That’s helped push the difference between the two grades in the U.S. to an average of more than 50 cents a gallon, the most on record.

“A lot of the gasoline blending components that have been piling up over the last few years are generally low in octane, ” said Patrick DeHaan, a senior petroleum analyst at GasBuddy Organization in Chicago. “It’s much harder and more difficult to put together a premium fuel.”

An average gallon of regular gasoline at the pump in the U.S. cost $2.218 a gallon Oct. 22, according to Heathrow, Florida-based AAA, the nation’s largest motoring group. A gallon of premium cost 49.6 cents more. The difference rose as high as 51.5 cents on Sept. 12.

Premium gasoline has a higher octane rating than regular, meaning it is more stable. The difference means nothing in most cars. In a high-performance car, though, the premium stuff can be compressed more, helping the engines get more power from each molecule of fuel. Regular gasoline in such a motor could ignite prematurely, causing engine knock and potential damage.

Shale oil from plays like the Eagle Ford and Bakken yields more naphtha, a low-octane gasoline component, than many imported crudes. Meanwhile, U.S. petrochemical factories that once used naphtha as a feedstock have switched to cheaper byproducts from record natural gas production.

“There’s been more and more low-octane naphtha barrels available to the market that require high-octane blendstocks to turn into finished gasoline,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “As a result, the cost of high-octane blendstocks have skyrocketed.”

Supplies of conventional gasoline blendstocks have tripled in the past 10 years to about 150 million barrels. Stockpiles of other blendstocks, including high-octane components like reformate and alkylate, have stayed about the same. Reformate in the U.S. has averaged a 60-cent a gallon premium to naphtha this year, according to data compiled by Bloomberg.

There are other reasons why premium is getting pricier. One is demand. Premium sales are up 13 percent compared from last year through July, compared with a 3.6 percent increase for regular gasoline.

There are also filling station economics to consider. Owners may be more competitive when setting regular prices because they comprise about 90 percent of gasoline sales.

“It’s often a deliberate market strategy to drop premium more slowly than regular gasoline,” Michael Green, a spokesman for AAA. said. “Gas stations look to declining regular prices as way to attract customers. The person who buys premium gasoline is seen as less price conscious.”

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