ALEXANDRIA, VA -- We all know that gas prices go up each spring, and generally seem to peak around Memorial Day. Most consumers assume that prices peak at this point because of the advent of the summer-drive season. Is that the case?
To a certain extent, demand is a factor. But there are a number of other events that collectively have a bigger effect on prices each spring, leading to price peaks right before Memorial Day. In six of the past 12 years, the seasonal peak was in the time period between May 9 and May 24, notes a new backgrounder released by NACS that examines spring price increases.
"As gas prices continue to dominate daily conservations, whether on the evening news or in political speeches, it??s important to discuss what is at the root of today??s high prices," said NACS Vice President of Industry Advocacy Jeff Lenard.
"Crude oil prices are the biggest factor driving gas prices, but how the crude oil is processed can also play a significant role in price increases. The petroleum industry??s switchover to summer-blend fuels, creates challenges that also affect retail fuels prices," said Lenard. "We encourage retailers to share this and other resources to explain market conditions to consumers and elected officials."
The latest NACS backgrounder takes detailed looks at several factors that affect prices each spring:
Demand for gasoline in the United States is generally lowest in the first two months of the year, so refinery maintenance, known as a "turnaround," is often scheduled during the first quarter of the year. Like any maintenance, some turnarounds may not go as planned, and take longer or be more complex than originally anticipated, further stressing the system.
The blends of gasoline used in the summer months are different than the blends used in the winter. Adding to the complications of producing new fuels, there are more of them. Summer-grade fuel is more expensive for two reasons. First, the process to produce it takes longer and is costlier. Second, the overall yield of gasoline per barrel of oil is lower than during the winter months. Estimates vary as to the added cost per gallon for summer fuel, ranging from around 3 cents to as much as 15 cents per gallon to produce these higher-grade fuels.
In most areas of the country that require summer-blend fuels, retailers have until June 1 to switch to selling summer-grade gas. Some retailers must sell summer-blend fuels much earlier. In Northern California, retailers must sell summer-blend fuel a month earlier than the rest of the country: May 1. In Southern California, the deadline is two months earlier: April 1. There are other key deadlines that put stress on the system much earlier than the retail deadlines. Nationwide, refiners must produce summer-blend fuel no later than April 1. The May 1 deadline for terminals is considered one of the biggest factors in the seasonal price increases.
Demand is often cited as the main reason for spring price increases. It is a factor, but one of many. U.S. gasoline demand increases every year beginning in February, and typically peaks in August. (In 2011, U.S. demand peaked early, in June.) The common misperception is that there is a huge increase in demand for the Memorial Day weekend and the official beginning of the summer-drive season. There is an increase, but it is only a few percent per month. The problem is that this demand occurs when the system is most vulnerable to demand increases.
Combined with world demand for crude oil, the patchwork of summer-blend fuels requirements places enormous stress on the fuels distribution system each spring. It??s often easy to have gas; the challenge is to have the right gas at the right place. And with different requirements across the country, you also need to have it there at the right time.
The complete backgrounder is available online.