Why Gasoline Pump Prices Are Spiking

This year’s gasoline price spike has been steeper than normal. Here are the reasons behind the rise.

Butane can be blended into gasoline, but it causes the blend to evaporate at a faster rate in summer. When the RVP limit increases for the winter, it becomes feasible to blend larger volumes of butane. Butane supplies are plentiful, and it generally trades at a significant discount to gasoline. Thus, winter gasoline blends are cheaper, and the ingredients are in greater supply.

This dynamic reverses in the spring when the RVP limit goes back down. By the start of summer driving season the RVP is back to summertime limits. Thus, the butane volumes have to be curtailed. Gasoline becomes more expensive to produce just when demand becomes highest. That almost always leads to rising gasoline prices in the spring.

In addition, this is all taking place during spring maintenance season for the refineries. Every spring, some refineries shut down units to do standard maintenance. This has the effect of reducing nationwide gasoline output for several weeks in the spring.

But this year, there are two other factors putting upward pressure on gasoline prices.

Midwestern Flooding

This year’s devastating Midwestern floods have also impacted gasoline prices. One of these recently affected me personally.

A couple of weeks ago, multiple gas stations in Phoenix ran completely out of several grades of gasoline. When I inquired about the reason, I learned that it was because the floods had disrupted ethanol deliveries. Ethanol is mandated in the fuel supply, but it is also used to boost the octane. The higher octane grades were the ones in short supply.

But the temporary ethanol shortage also boosted ethanol prices. The overall impact was far less than the surge in oil prices (see below), but should the floods impact this year’s corn supplies, we may not have seen the last of the impact of the floods.