Why Fall Brings Cheaper Gasoline

Gasoline prices usually fall after summer, and not just because demand drops. Today, I explain the factors that typically lead gasoline prices to trend down as fall arrives.

Fall Means Cheaper Gasoline

In September, the RVP specifications begin to be phased back up. This lowers the cost of gasoline production by allowing the blending of more butane, which is cheap relative to most other gasoline blending components. 

Butane has an RVP of 52 psi, which means pure butane is a gas at ambient pressure and temperature. But it can be blended into gasoline, and its fractional contribution to the blend roughly determines its fractional contribution to the overall vapor pressure. As long as the total blend does not exceed normal atmospheric pressure (again, ~14.7 psi) butane can exist as a liquid in a gasoline blend.

Butane can’t make a large contribution to summer blends without driving the vapor pressure above the limit. But when the limit increases in the fall, it becomes feasible to blend larger volumes of butane. 

Butane is cheap and abundant. Butane is a component of natural gas liquids (NGLs), the production of which have boomed along with natural gas production. Butane routinely trades at a discount of more than $1/gallon to gasoline, so gasoline blenders are happy to blend as much in as they possibly can.

So fall not only brings lower demand, but it opens up the gasoline supply to a cheap and abundant blending component. That’s why prices tend to fall as the weather begins to cool. And as summer approaches, the RVP specs tighten back up. The amount of butane that can be blended drops, just as summer driving season starts to pick back up. That’s why gasoline prices conversely rise by Memorial Day.

Up Next – The Ethanol Effect

The requirement to blend ethanol into the gasoline pool is a wildcard that has impacted gasoline blending over the past decade. I will discuss the impact of ethanol, and how a move to 15% ethanol blends can impact gasoline specifications, in the next article.

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