HOW STUFF WORKS


Why is summer fuel more expensive than winter fuel?

by Jacob Silverman

 

Unfortunately for drivers, gas prices often go up during the summer, starting around Memorial
Day [Source: EPA]. There are many reasons behind the increase in summer fuel prices, and
some are fairly logical. More people traveling, especially on family vacations and road trips,
increases demand. Also, in the spring months, energy companies conduct maintenance on their
refineries, shutting them down and limiting capacity until late May. Because of these disruptions,
oil supplies can become stretched. In addition, natural disasters, like hurricanes, can increase
prices by disrupting transport routes and damaging refineries and other infrastructure.


But did you know that the gasoline sold during the summer is actually different -- and more
expensive to produce -- than that sold in the winter? In this article, we'll take a look at why
summer fuel prices are higher, focusing on the annual shift from winter-grade fuel to summergrade
fuel.


Twice every year in the United States, the fuel supply changes. It's known as the seasonal
gasoline transition. This change is the biggest reason for the price hike in summer gasoline.
Depending on the time of year, gas stations switch between providing summer-grade fuel and
winter-grade fuel. The switch started in 1995 as part of the Reformulated Gasoline Program

(RFG), which was established through the 1990 Clean Air Act Amendments. The Environmental
Protection Agency (EPA) started the RFG program in order to reduce pollution and smog during
the summer ozone season, which occurs from June 1 to Sept. 15 [Source: EPA].


In order to reduce pollution, summer-blend fuels use different oxygenates, or fuel additives.
These blends, the EPA claims, burn cleaner and also help compensate for a limited oil supply.
The EPA says this practice of using seasonal blends also encourages the development of
alternative fuels [Source: EPA]. (Remember that gasoline isn't just made up of processed crude
oil -- it's a blend of refined crude oil and different compounds and additives.)


So what's the difference between summer-grade fuel and winter-grade fuel? Summer-grade fuel
is more expensive for two reasons -- because of the ingredients it contains and because refineries
have to briefly shut down before they begin processing it. Summer-grade fuel also burns cleaner
than winter-grade fuel. This just means that it produces less smog and releases less toxic air
pollutants, which we'll talk about more [source: EPA]. The actual difference in cost of
production varies. One estimate claims an increase of only 1 cent to 2 cents per gallon [Source:
Slate], while another states 3 cents to 15 cents per gallon [Source: Reason]. No matter the
difference in production costs, the increase at the pump is even greater, owing to the summer
driving season, dips in supply, maintenance costs and companies' converting to production of
summer blends.


We'll take a look at why summer-grade fuels are more environmentally friendly and when
exactly the shift between summer and winter fuels occurs.

 

Summer-grade versus Winter-grade Fuel

 

During the summer, pollution is a frequent concern due to increased levels of smog and ozone,
which can harm the lungs. Summer heat boosts the formation of ozone, while the appearance of
an inversion layer -- an immobile layer of air -- can trap pollutants in the lower atmosphere
[source: EPA].


Summer-grade fuel has a different Reid Vapor Pressure (RVP) than winter-grade fuel, which
contributes to its being (marginally) more eco-friendly. RVP is the vapor pressure of gasoline
measured at 100 degrees Fahrenheit. Fuels with higher RVP evaporate more easily than those
with lower RVP. A particular fuel blend's RVP is based on the combined RVP of the ingredients
that make up the blend. Regulators worry about this evaporation because it contributes to ozone
formation.


Gasoline must have an RVP below 14.7 PSI (pounds per square inch), which is normal
atmospheric pressure; if a fuel's RVP were greater than 14.7 PSI, excess pressure would build up
in the gas tank, and the fuel could boil and evaporate. Depending on the part of the country, the
EPA's standards mandate an RVP below 9.0 PSI or 7.8 PSI for summer-grade fuel. Some local
regulations call for stricter standards. Because of these varying RVP standards, up to 20 different
types of boutique fuel blends are sold throughout the U.S. during the summer [Source: Slate].


Because RVP standards are higher during the winter, winter-grade fuel uses more butane, with
its high RVP of 52 PSI, as an additive. Butane is inexpensive and plentiful, contributing to lower
prices. Summer-grade fuel might still use butane, but in lower quantities -- around 2 percent of a
blend [Source: The Oil Drum].


We know that gas prices go up during the summer, generally around Memorial Day, but when do
companies start producing these different summer fuels? The EPA defines April to June as the
"transition season" for fuel production [Source: EPA]. Refineries switch over to summer-blend
production in March and April [Source: EPA]. Gas stations have by June 1 to switch to selling
summer-grade gas, while terminals and other facilities "upstream" from pumping stations have
to switch by May 1 [Source: EPA]. Following the summer driving season, companies switch
back to winter blends beginning in September, with the first winter increase in RVP allowance
occurring on Sep. 15.


In a 2001 report, the EPA claimed that "roughly 75 million Americans breathe cleaner air today
due to [the seasonal fuel] program" [Source: EPA]. Still, the increased price, combined with the
use of controversial additives like ethanol (which is less energy efficient than gasoline and
produces more smog) and methyl tertiary butyl ether (MTBE), means that the program may still
have its detractors.


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND MAY NOT BE SUITABLE
FOR EVERYONE. OPTIONS, CASH AND FUTURES MARKETS ARE SEPARATE AND DISTINCT AND DO NOT
NECESSARILY RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT IN THE
CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES & OPTIONS
CONTRACT BEING OFFERED. SEASONAL DEMAND AND CURRENT NEWS IN COMMODITIES ARE
ALREADY REFLECTED IN THE PRICE OF THE UNDERLYING FUTURES.