Switch to Winter-Blend Gasoline Means Cheaper Prices at the Pump

Gas prices have fallen for eleven of the past 12 days, reaching today’s average of $2.18 per gallon. Drivers are saving two cents per gallon compared to one week ago, but are paying five cents per gallon more on the month. Overall gas prices remain lower than last year due to the relatively low price of crude oil with drivers saving an average of 18 cents per gallon compared to a year ago.

The national average price for unleaded gasoline is expected to keep moving lower as we head into fall barring any unexpected disruptions in supply or spikes in the price of crude oil. Pump prices typically decline during this time of year due to lower driving demand after the busy summer driving season has concluded and the changeover from summer-blend to a cheaper-to-produce winter-blend gasoline, which takes place in many parts of the country starting on September 15.

The difference between summer- and winter-blend gasoline involves the Reid Vapor Pressure (RVP) of the fuel. RVP is a measure of how easily the fuel evaporates at a given temperature. The more volatile a gasoline (higher RVP), the easier it evaporates.

Winter-blend fuel has a higher RVP because the fuel must be able to evaporate at low temperatures for the engine to operate properly, especially when the engine is cold. If the RVP is too low on a frigid day, the vehicle will be hard to start and once started, will run rough.

According to the U.S. Energy Information Administration (EIA), drivers will continue to benefit from an oversupplied market and AAA predicts that consumers could experience national average prices below $2.00 at the pump if the price of crude oil remains relatively low and refineries are able to conduct planned seasonal maintenance without issue.

Quick stats
Gas prices in seven states are below $2.00 per gallon: South Carolina ($1.91), Alabama ($1.94), Mississippi ($1.97), New Jersey ($1.98), Texas ($1.98), Tennessee ($1.99) and Virginia (1.99).
The biggest weekly decreases in price are seen in Indiana (-11 cents), Michigan (-10 cents), Ohio (-9 cents), Kentucky (-7 cents), Nebraska (-6 cents), Maryland (-5 cents), Minnesota (-4 cents).

West Coast
Gas prices on the West Coast remain some of the highest in the nation, with six out of ten of the nation’s most expensive retail markets located in this region: Hawaii ($2.75), California ($2.73), Washington ($2.67), Alaska ($2.58), Oregon ($2.50) and Nevada ($2.48).
Strong demand in the region is currently pressing on limited supplies. The drop in supplies can likely be attributed to issues at two California refineries earlier this month. The region also currently has the highest wholesale price for gasoline, which translates to higher prices for drivers. While prices remain on the high-end, some drivers in the region are still benefitting from significant year-over-year discounts. Only two states nationwide are posting yearly discounts of more than 50 cents per gallon and both are located within this region: Alaska (-73 cents) and Nevada (-60 cents).

Rockies
Drivers in the Rockies are also enjoying large yearly discounts with Colorado (-46 cents), Utah (-45 cents), Wyoming (-43 cents), New Mexico (-37 cents), Arizona (-36 cents) and Idaho (-35 cents) all in the top ten largest discounts in the country. Prices in the region have generally been the most stable across the nation since it is geographically insulated from pump price movement tied to global crude oil prices. Regional prices may see a slight drop this week as seasonal effects like decreased demand and the switchover to cheaper-to-produce winter-blend gasoline take effect.

Great Lakes and Central States
Prices are starting to move lower following the close to the summer driving season, with six states in these regions making the top 10 list for biggest weekly discounts: Indiana (-11 cents), Michigan (-10 cents), Ohio (-9 cents), Kentucky (-7 cents), Nebraska (-6 cents) and Minnesota (-4 cents). The decrease is a relief for drivers in the regions who have dealt with significant volatility throughout the summer.

Crude oil supply appears to be building in the region which has helped to stabilize the price at the pump. Barring any unexpected disruptions in supply, drivers should see prices continue to drop with the switchover to winter-blend gasoline.

Mid-Atlantic and Northeast
Prices across much of the Mid-Atlantic and Northeast have remained relatively flat, however the shutdown of the Colonial Pipeline late Friday evening may impact prices moving into this week. The pipeline is a major artery in the movement of gasoline from Pasadena, Texas all the way up the Eastern Seaboard and disruptions can have a significant impact on supply. Two of the lines on the pipeline were shut down Friday following reports of potential system integrity issues. According to the Oil Price Information Service, Colonial Pipeline restarted delivery on Line 2 from Houston to Greensboro on Saturday, but gasoline delivery on Line 1 is not expected to restart until later this week due to a potential gas leak. This will impact northern states over the next 48 hours. There is, however, ample supply in the region and the higher-than-usual inventories should provide a buffer to the temporary gasoline delivery stoppage. Despite the down lines, two states in the region are among the six cheapest in the country: New Jersey ($1.98) and Virginia ($1.99).

South and Southeast
Markets in the South and Southeast continue to post some of the lowest prices for retail gasoline in the nation, with seven out of ten least expensive retail markets: South Carolina ($1.91), Alabama ($1.94), Mississippi ($1.97), Texas ($1.98), Tennessee ($1.99), Arkansas ($2.01) and Louisiana ($2.01). Ample supply is a contributing factor to the comparatively lower prices in the region. Reports from OPIS say that the Southeast region has also been impacted by the Colonial Pipeline shut down. Southern deliveries are down, which will likely cause some sporadic supply outages, especially in areas supplied by its stub lines in the Southeast. Like the Northeast, the higher-than-usual inventories in the area should provide a buffer to the temporary gasoline delivery stoppage for the next few days, and as a result southern states should not be greatly impacted by the pipeline issues. Approximately 50 percent of the total U.S. refining capacity is located along the Gulf Coast, which generally helps to balance supply and keep prices in the region relatively low.

Oil Market Dynamics
Oil prices briefly spiked last week due to the release of an EIA report that stated U.S. crude inventories fell 14.5 million barrels, but quickly retreated when inventory numbers were attributed to import disruption due to tropical storm Hermine. WTI opened this week trading lower, following news that the U.S. oil rig count increased for the tenth consecutive week and the sustained strength of the U.S. dollar. Traders will continue to keep an eye on discussions surrounding the upcoming OPEC meetings and the possibility of member and non-member countries agreeing to a production freeze. At the close of Friday’s formal trading session on the NYMEX, WTI was up $1.74 to settle at $45.88 per barrel.