While we’ve seen up-and-down spikes in stock market indices, cryptocurrency values and the prices of crude oil and motor fuel in recent years, the price of one important commodity has been quietly but relentlessly rocketing higher — octane, the primary yardstick of gasoline quality and price. The steady rise in octane prices is tied in part to the fundamental change in how octane is valued, with the retail market now being impacted more by demand than production costs. In today’s RBN blog, we look at why octane prices have climbed over the past decade and what market factors are limiting its supply.
It’s been a while since we took a deep dive into octane market trends — see The Price You Pay (For Premium Gasoline) for that — so we’ll start with a quick refresher. Octane is a measure of a gasoline’s resistance to pre-ignition during compression in an engine cylinder, which can cause a knocking sound. Retail gasoline is classified by its octane rating: regular gasoline has an octane rating of 87 and premium gasoline has an octane rating of 91 to 93. In the U.S., the posted octane rating is the average of the octane measured two different ways, the Research Octane Number (RON) and the Motor Octane Number (MON). That average is called the Anti-Knock Index (AKI), which is the octane number we see posted on the pump. And as most drivers know, higher octane means a higher price per gallon.
U.S. demand for premium gasoline has been increasing steadily for several years now, from under 9% of total gasoline sales in 2008 to 13% in 2022. The trend is tied to the fact that more and more cars, SUVs and trucks are fitted with high-compression engines and/or turbochargers, which improve fuel economy without sacrificing performance — but which also require higher-octane fuels. Also, in the same way many of us buy premium-quality food for our beloved dogs and cats, it’s not uncommon for drivers to opt for higher-octane gasoline, believing that it will improve their vehicle’s performance. Just as octane demand has been increasing, however, a number of factors have been tamping down octane supply, spurring a run-up in the retail “price” of octane, which is measured by the difference between the pump prices of premium gasoline and regular gasoline.
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