Why is premium gas so expensive? More Americans are filling their cars with it

(CNN) — The price displayed above that third button on the gas pump averaged more than $5.40 for several days this spring. American drivers still couldn’t get enough.

Premium gas now costs around a buck a gallon more than regular – way more than the price “premium” that drivers paid for the higher-octane stuff a decade ago.

Yet demand for premium gas is up. That makes some sense: More new vehicles recommend or require premium-grade octane levels of at least 91. But many drivers falsely believe high-octane gas offers a kind of treat for their engines.

High gas prices during the Iran war never really changed Americans’ driving habits. That’s particularly true for owners of higher-end SUVs, trucks and luxury cars that actually need a higher octane level.

Whatever the reason for the rise in demand, gas stations have turbocharged price hikes for premium gas over the past couple decades, creating a profit engine for station owners.

Price hikes

Historically, high-octane gas has cost about 20 cents a gallon more than regular – barely budging for decades. But that difference started to gradually widen around 2005 before taking off like a rocket a decade later.

That gap grew to 40 cents in 2015, hit 60 cents in 2018 and crossed 80 cents in 2022, according to the Energy Information Administration. It’s just below $1 today.

Higher refining costs are partially to blame. In the mid-2000s, two federal regulations went into effect that required automakers to lower vehicles’ sulfur output – which also reduces octane. To preserve premium’s higher octane level, refineries add cleaner-burning, higher-octane — and more expensive – ethanol to their blends.

But the ethanol cost was marginal – not nearly as much as the surge in retail prices would have you believe: Although the difference between premium and regular gas widened by 70 cents a gallon over the past two decades, the gap in wholesale prices rose by just 20 cents a gallon since 2007, according to the EIA.

In other words: Premium gas has become pure profit for gas stations.

“Who do you think is making the money? It’s the service station,” said Andy Lipow, president of Lipow Oil Associates.

Increased demand

That hasn’t kept customers away: Premium made up around 13% of overall gas sales last year, up from 9% in 2013, according to Lipow.

That’s in part because the number of new cars with engines that require or recommend premium has surged. By 2018, they eclipsed the number of new car models that recommend regular gas, according to the Department of Energy.

That increased need led stations to charge more for premium – a cost that car -owners have proven willing to pay.

Vehicles that need premium gas are typically expensive ones, luxury cars and large trucks or SUVs.

“The people who need to use premium aren’t the ones who are concerned about paying for it,” said Tom Kloza, an independent oil analyst.

Perception…

But new cars aren’t the only reason people buy premium gas. Some drivers buy it, even when their cars don’t need it.

“The consumer likes to put premium gas in their car because they think it gives them better performance,” said Lipow.

A century of marketing created that perception.

Premium gas hit the market in 1923, when General Motors and Esso formed Ethyl Corp, a company that sold a fuel additive called tetraethyllead, or TEL. The additive made engines more efficient and less susceptible to “knocking,” – when un-ignited fuel spontaneously combusts.

“Ethyl” gas became synonymous with an upgrade over regular, long after all gasolines began including TEL, according to AAA. Because Ethyl was a licensed trademark, gas stations that used non-Standard Oil fuels started calling their high-performance products “premium,” which gradually became the industry standard lingo.

In the mid-1950s automakers started selling some high-end cars with turbocharged engines that force and compress more air into combustion cylinders. Those high-compression-ratio engines can raise a car’s fuel economy, but they also increase the chance of engine knocking. So gas stations started producing and marketing high-octane “premium” gas for higher-efficiency engines.

With the advent of fuel-injected engines that accumulated carbon deposits, oil refiners in the 1980s and 1990s started advertising detergents in their premium gas that could clear away the gunk. When the EPA required those detergent additives in 1996, gas stations started advertising “Top Tier” gas with even better performance.

More recently, gas stations have started competing on octane levels. Although “premium” typically requires an octane level of at least 91, many stations offer much higher levels. On the East Coast, 93 octane has become typical, Lipow noted, and Sunoco recently started selling Ultra 94 with even higher octane levels.

… vs. reality

But octane is just a measure of fuel stability and resistance to knocking; it doesn’t make your car go faster. The efficiency comes from the engine mechanics itself – not a higher octane level.

Resistance to knocking, for turbocharged engines that need it, can make an engine more efficient, adding increased ignition timing, longer burn cycles, greater energy extraction from the air-fuel charge in the cylinder and higher torque and horsepower, according to AAA.

But premium gas offered zero benefits to cars built for regular 87-octane gas, AAA found in a 2016 study. Those engines don’t need the higher octane level because they don’t suffer from the same knocking concerns.

Even cars that do benefit from premium gas probably don’t need anything above 91 octane. Few cars require it. So 93 or 94 isn’t getting you any increased performance.

“It’s a marketing thing,” said Lipow. “You’re paying more for something that supposedly gives you a slight increase in energy. But most people will never see it.”

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