Gasoline pumps have been labeled as Regular, Midgrade, and Premium based on octane rating for many years, but modern gasoline formulations have many other attributes. Performance and emissions standards that govern how gasoline is made, which have varied over time and by location, affect the production cost of gasoline and its retail price.

Octane and volatility are two major gasoline qualities that can affect vehicle performance. Most vehicles are designed to run on regular-grade gasoline. High-performance engines, which create higher compression to increase power, may require Mid- or Premium-grade gasoline to optimize performance. Over time, required gasoline octane ratings have declined somewhat as newer vehicles evolved with engines that could perform well with lower octane ratings. Fuels with higher octane ratings are less prone to pre-ignition and detonation (engine knocking). Regular-grade gasoline has the lowest octane rating, greater than or equal to 85 and less than 88, and is also typically the least expensive of the three grades. Gasoline octane ratings are generally lower at higher altitudes due to the decreased atmospheric pressure reducing compression in engines. For example, in some of the Rocky Mountain States, Regular-grade gasoline will usually have an octane level of 85, while an octane level of 87 is more common for sea-level areas of the country.

While octane rating is important, a fuel's drivability is greatly influenced by fuel volatility. Does the engine start promptly, warm up smoothly, and run without rough idling, stalling, or poor acceleration? These features are determined by a gasoline's volatility (how readily it vaporizes) because in a combustion engine, it is actually the fuel vapor that burns, not the liquid. Gasoline vaporizes more readily in warmer temperatures, and, thus, summertime gasoline must be formulated to vaporize less easily to avoid performance issues such as vapor lock and to minimize emissions. Conversely, winter gasoline must be formulated to vaporize more easily to enable starting cold engines.

On the Nation's path to a cleaner environment, emission standards have significantly changed the composition of gasoline. For many decades, lead was widely used in gasoline to boost octane. With implementation of the Clean Air Act of 1970, unleaded gasoline became widely available in the mid-1970's, and most gasoline was lead-free by the mid-1980s.

Gasoline's volatility not only affects performance but also has environmental impacts because gasoline evaporating from fuel tanks contributes to ground-level ozone formation, also known as smog. Reid Vapor Pressure (RVP), which is the common industry measure of volatility, indicates gasoline's rate of evaporation. RVP regulations in 1989 and 1992 established summer and winter gasoline programs to lower the volatility of gasoline. Summer RVP levels are held to a level below 7.0 psi to a maximum of 9.0 psi, depending on the area, with Alaska and Hawaii exempt from the regulations. Refiners and blenders meet the RVP regulations through special seasonal and geographic gasoline formulations.

The Clean Air Act Amendments of 1990 (CAAA1990) led to further improvements in cleaner-burning gasoline. The use of detergents has been required in virtually all gasoline sold in the United States since 1995 to prevent the build-up of deposits in engine fuel delivery systems, which improves vehicle performance and lowers exhaust emissions. The CAAA1990 also introduced the reformulated gasoline (RFG) program. Beginning in 1995, the U.S. Environmental Protection Agency designated RFG areas where all gasoline sold must meet specific composition and emission performance criteria. These RFG areas, which represent about one-third of total U.S. gasoline consumption, are regions that have a poor record of meeting air quality standards for smog, usually centered around large metropolitan areas. The RFG program required significant changes in fuel composition to reduce tailpipe emissions, including reduction in sulfur and materials that produce smog and toxic emissions. Methyl tertiary butyl ether (MTBE) or ethanol, which were already being blended into some gasoline to boost octane following the removal of lead, were initially used in all gasoline meeting using the RFG standard. While MTBE was initially the dominant octane and oxygen-boosting additive used in RFG, concerns over MTBE contamination in groundwater resulted in MTBE being banned by several States. Beginning in the spring of 2006, MTBE was completely phased out of the U.S. gasoline supply.

In addition to its use in RFG, ethanol is also being used to satisfy the Renewable Fuel Standard (RFS), which was first enacted in 2005 and substantially expanded in 2007. The RFS requires the use of specified volumes of biofuels in place of petroleum products. This has led to ethanol being blended into most gasoline currently sold in the United States. Consumers may notice signs at the pumps indicating that the fuel for sale contains up to 10 percent ethanol.

Parts of the country that have not been designated by EPA or States as RFG areas may use conventional gasoline, which typically sells at a discount to RFG. However, the content of conventional gasoline has also changed to be cleaner-burning, with reductions in sulfur and benzene content, for example. As the transition to these changes occurs, the conventional gasoline formulation evolves closer to RFG.

Some States and counties have also received permission from EPA to implement their own clean fuel programs that may be more stringent than the Federal standard in order to meet their specific clean air requirements. Figure 1 illustrates the variety of gasoline formulations required by State and Federal law in different parts of the country.

In summary, today's motor fuel is not your parents' gasoline. It is less polluting, no matter where you live. Differences in the cost of producing each fuel formulation are one factor, along with differences in State and local taxes and distribution costs and changes in crude oil prices, that lead to variation in fuel prices by location and over time.

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U.S. Average Gasoline Price Dips Slightly

Following three consecutive increases, the U.S. average price for regular gasoline slipped a penny to settle at $2.64 per gallon this week. The national average was $1.10 below the year-ago price. Regionally, prices dropped in the Midwest and on the Gulf Coast but increased elsewhere. On the East Coast, the average price moved up a cent to $2.62 per gallon. The price in the Midwest dropped the most of any region, falling nearly five cents to $2.55 per gallon. Remaining the lowest among the regions, the average price on the Gulf Coast slipped a penny to $2.51 per gallon. The Rocky Mountains had the largest increase of any region, increasing about four cents to $2.61 per gallon. The average on the West Coast and in California each inched up about a penny, to $2.96 and $3.05 per gallon, respectively.

The national average price for diesel increased for the fourth week in a row, going up three cents to $2.65 per gallon. The average was $1.56 below the price a year ago. On the East Coast and in the Midwest, the average rose two cents to $2.69 and $2.62 per gallon, respectively. Despite an increase of three cents, the average on the Gulf Coast was the lowest of any region at $2.61 per gallon. The average in the Rocky Mountains increased the most of any region, jumping six cents to $2.63 per gallon. On the West Coast, the average price increased four cents to $2.74, while the average in California moved up three cents to $2.87 per gallon.

Propane Build Slows

Despite propane inventories growing by a modest 0.3 million barrels to hit 69.8 million barrels last week, stocks were at the highest level since November 2006. The Midwest region realized most of the growth with a 1.1 million barrel increase while the Rocky Mountain/West Coast region added 0.1 million barrels in inventory. The East Coast and Gulf Coast regional inventories declined by 0.1 million barrels and 0.8 million barrels, respectively. Propylene non-fuel use inventories fell this week, sending the share of total propane/propylene inventories to 2.7 percent.