Gas prices are always volatile; but right now, we are seeing even more chaos than usual. There are many factors involved, including Venezuelan sanctions, refineries out of balance with light and heavy crude and Saudi and Russian production cuts. All this unrest is creating an even earlier transition than usual to summer grade gasoline. These factors are creating the perfect storm and resulting in higher prices at the pump.
All gas suppliers are required to switch to a summer grade of gasoline
EPA air quality standards require suppliers to switch to a more expensive summer blend of gas to reduce air pollution with less fumes. Summer-grade gasoline has a lower volatility than winter-grade gasoline and is more environmentally friendly, limiting the evaporative emissions or fumes from vehicles into the air.
The switch to summer grade gasoline started in 1995 as part of the Reformulated Gasoline Program (RFG), established through the 1990 Clean Air Act Amendments. The Environmental Protection Agency (EPA) initiated the RFG program to reduce pollution and smog during the summer ozone season. Summer-grade fuel has a different Reid Vapor Pressure (RVP) than winter-grade fuel, which makes it more eco-friendly.
The summer-grade burns cleaner and replaces inexpensive butane with more expensive oxygenates, or fuel additives that are better for the environment.
This transition is occurring earlier this year due to the turbulence in the market; and will result in an approximate .20 cent per gallon increase. Summer grade gasoline has already hit the pipelines. The summer blend is gradually moving to our shops, so some may see the increase before others but everyone is required to carry summer grade gasoline by May 1st.
OPEC and Russia are pledging production cuts
OPEC favors production cuts. And when production is cut, supply is cut. It’s the simple law of supply and demand. When supply goes down and demand goes up, the price increases. Right now, we’re seeing an increase in international and domestic demands for crude oil.
US Sanctions on Venezuela
The US supplies are constrained due to sanctions on Venezuela. And while the US produces a light, sweet crude, many US refineries rely on heavy thick crude like Venezuela. The US is looking for ways to replace this crude, which is causing a spike in both crude and its refined products such as gasoline and diesel. Shutting off heavy crude from Venezuela to Gulf Coast refineries reduces the production of heating oil, fuel oil, and diesel.
While these market factors are unavoidable and unfavorable – know that we are always keeping a close eye on the gas markets, with our customers in mind.