posted by Decision Innovation Solutions on Wednesday, August 14, 2013
A hot topic in Iowa news recently has been the potential gasoline price increases resulting from Magellan Midstream Partners, LP replacing 87 octane with 84 Octane to terminals in Iowa starting this fall. These changes will affect both retailers as well as consumers. The current gasoline options vary at each gas station, depending on how many different tanks they have. Some only offer two products, such as regular unleaded (87 octane) and a super unleaded (E10, 89 octane) product. Other retailers, likely with three tanks, offer both regular and super unleaded as well as premium (91 octane) gasoline.
Currently, premium has a relatively low demand due to the fact that it is more expensive and is used more by motorcycles, boats, and cars with high performance engines. Retailers will now have to decide which products they will offer at their stations since 84 octane is not a high enough octane level to be dispensed without a boost in octane rating. For those who still want to offer a regular unleaded product, the 84 octane will need to be blended with premium (91 octane) to reach the minimum octane level needed.
As a consumer, these numbers might not mean much to you as long as something is available at the gas station to fill your car. The number you are likely most interested in is the price. Basic supply and demand rules will dictate that when demand goes up, so will price. As I mentioned, premium gasoline is currently not in high demand in Iowa, but that demand is going to increase when it is needed to blend with 84 octane to create the regular unleaded product many consumers want. As the change in fuel offerings take place next month, it will be interesting to see the actual impact on retail prices of fuel, especially since there has been forewarning on the change.