Bass Ackwards Gas Prices?

July 29, 2006 9:01 PM

GasFilter: Why are gas stations in central Iowa selling premium gas cheaper than regular gas?

I'm in central Iowa visiting relatives, and I've noticed something strange: gas stations are selling 'Super Unleaded' high-octane gas for as much as 10 cents less than 'Regular Unleaded'. At first, I thought it must be a mistake, but I've since noticed it in other gas stations, even those of other franchises. How can this be profitable/economically sensible for them?
I've come up with some hypotheses:
a) It's nota mixup on the part of the gas station attendants, since I've seen it in more than one place.
b) There's some sort of surplus of premium gasoline as compared to normal gasoline. I don't *think* this is the case, as I've seen it over a rather wide area (towns 100+ miles apart). Besides, since cars that can take normal gasoline can just as easily run on premium, I would think that this would be self-correcting.
c) The stations can somehow purchase premium gas cheaper than regular gas. I don't know how this could be the case, and I'm pretty sure there's a law against stations selling gas below cost.
Beyond that... no idea. Enlighten me!
P.S.: I just joined MeFi after lurking for a while, so this is my f1rst p0st.

posted by ArbiterOne to travel & transportation (20 comments total)

Iowa is a big corn state. Ethanol subsidies perhaps? I wonder if the "Super Unleaded" in Iowa contains ethanol.

If no one can answer this, then ask the gas station attendants and come back and tell us!
posted by evariste at 11:04 PM on July 29, 2006

Yes, I would say ethanol. I lived in Nebraska a couple years ago and this was the case...blew my mind!
posted by illek at 11:10 PM on July 29, 2006

Yes it's the ethanol, I'm pretty sure the regular doesn't contain it, but the higher grade does.
posted by borkencode at 11:14 PM on July 29, 2006

Do you need an e85-capable engine to use it?
posted by mathowie at 11:20 PM on July 29, 2006

Do you need an e85-capable engine to use it?

no. e85 is 85% ethanol. this stuff is probably 10-15% ethanol, and most engines won't even notice the difference.
posted by sergeant sandwich at 11:30 PM on July 29, 2006

You guys are forgetting some very simple economics:

* The markup for gas (and especially premium gas) is so high, you can significantly reduce the price and still turn a profit.
* Premium gas is not a big seller when all prices are very, very high.
* You can't store gas forever -- it degrades over time.
* Therefore, the owner may be attempting to get rid of excess, perishable, slow-selling inventory in order to purchase more of the faster-selling, regular inventory.

So, you reduce the retail price of the low-selling premium to clear the way for a wholesale purchase of regular, the people buy the premium thinking they're getting an unbelieveable deal -- "better gas" at a discounted price -- and the owner still makes money all around.

Think about it. Let's say you own a fish market and you sell two types of fish -- expensive and regular. There's a big storm in the Atlantic, so all the fish prices go so high, no one is buying the expensive fish. You only have so much refrigerator space. Fish goes bad after a while. Reduce the price of the expensive fish and get it the hell out of your store, fast.
posted by frogan at 11:39 PM on July 29, 2006

I think frogan's hypothesis is more likely than the ethanol one(s) presented above. I have occasionally observed premium at a lower price point than regular at stations in both Portland, OR and upstate NY, neither of which areas are particularly known for massive corn production.

I have seen this only since gas prices have climbed to around $3 / gallon, and I have always chalked it up to service stations dumping excess inventory before it evaporates / degrades.
posted by dersins at 11:47 PM on July 29, 2006

As has been pointed out, it's an ethanol blend (E-10). When I lived across the border in Nebraska, it's all I used (it was cheapest, after all!). My perfectly normal car had no problem with it.
posted by jal0021 at 11:56 PM on July 29, 2006

Sure wish I could find premium cheaper than regular around here for my octane hungry turbo. The low level of ethanol in premium blends won't hurt a regular car. In fact I run a few tanks of Husky's premium thru my gasoline powered cars in the fall to suck up any moisture that may have condensed in the tank as insurance against fuel line freezing.
posted by Mitheral at 12:21 AM on July 30, 2006

"The markup for gas (and especially premium gas) is so high, you can significantly reduce the price and still turn a profit."

Actually, the markup for gas is so low, that it's nearly impossible to make enough profit on gas alone to run a gas station, which is why the attached convenience stores have been getting more and more prominent, with a wider range of products.
posted by CrayDrygu at 12:35 AM on July 30, 2006 [1 favorite]

The ethanol blend was the same price as regular fourteen years ago. Grr.
posted by brujita at 12:55 AM on July 30, 2006

hmm...

would it be illegal to put a higher grade of gas into a car then the promised octane? I believe that the octain levels are "minimum" ones, and if so, the gas station owner could fill your car with 93 when you pay for 87... as far as gas getting old and going bad...?
posted by Izzmeister at 1:14 AM on July 30, 2006

Iowa's Department of Agriculture subsidizes gasoline with ethanol. "Super Unleaded" in Iowa means gasoline with ethanol. Here is their justification. All the fuel pumps that sell this kind of fuel are required to be marked with a sticker.
posted by thirteenkiller at 4:22 AM on July 30, 2006

Also, expect ethanol subsidies to spread and increase nationwide as this obsession with domestic fuel sources persists.
posted by thirteenkiller at 4:25 AM on July 30, 2006

Not sure why everyone else is confused. It's definitely the E10 being subsidized that brings the price down.
posted by cellphone at 6:56 AM on July 30, 2006

Completely normal for Iowa for gasohol (E10)--rated 89 or 89.5 octane--to be priced lower than "regular" unleaded gas. Gasohol (also called Super Unleaded), as pointed out, has long been subsidized by the Iowan government in order to lower its price, in order to create a demand for it. (I believe that Minnesota, in fact, requires most fuel to be at least 10% alcohol, so you would only be able to get E10 or higher, so no regular unleaded.)

So yes, it is normal in Iowa for superunleaded to be cheaper. side note: There's speculation that in the upcoming future, market pressure that will drive the price higher in spite of the subsidization. Apparently California & New York are phasing out MTBE as a gas additive used to raise octane rating of petroleum, which has raised the demand for E10. Hence the demand for ethanol-based gasoline has been rising, which leads to price increases. But that's in the future, so for now, enjoy the price break & fill 'er up
posted by neda at 7:19 AM on July 30, 2006

Definitely E10. I live in Iowa. The governor of Iowa is trying to get Ethanol subsidized nationally. (He's also running for president, no doubt related.) And because Iowa is the first Democratic primary state, likely candidates formerly against such subsidies, e.g. Hillary Clinton and John McCain, have been suddenly changing their positions lately. So expect nationwide Ethanol soon, though not necessarily cheaper. Iowa can afford cheap Ethanol partly due to subsidies, but also due to the high concentration of corn and Ethanol refineries in Iowa. (Disclaimer: I worked on the website in that last link.)
posted by scottreynen at 7:24 AM on July 30, 2006

Native Iowan here, who noticed the price difference last summer on a trip through the "beautiful land." It's definitely the subsidies at work. Strange thing was, I noticed significantly (~10%) lower gas mileage with the ethanol blend. Maybe it was just me and my car (PT Cruiser) but I'm not sure if the 10-cent savings was really worth it.
posted by CMichaelCook at 10:12 AM on July 30, 2006

Actually, the markup for gas is so low, that it's nearly impossible to make enough profit on gas alone to run a gas station...

And if you really believe the statistics provided to you by the gas stations and oil companies themselves (not to mention industry-funded think tanks), I've got some land in Florida to sell you...
posted by frogan at 1:20 PM on July 30, 2006

CMichaelCook: Oh, we noticed it as well. The girlfriend and I drove through Idaho, Montana, North Dakota, Minnesota, Iowa, Nebraska, Wyoming, Utah, Nevada, and then back through California. The E10 mixtures are 85 octane instead of 87. You do end up getting a little less bang for the buck, but I didn't notice it being too huge of a difference.
I drive a 1994 Ford Explorer. E10 worked just fine in it. I got a few emissions errors, but nothing serious.

The cheapest gas we saw was in western Wyoming. Then we got back to California and the gas prices were *way* higher.
posted by drstein at 8:25 PM on July 30, 2006