Release date: March 30, 2016 | Next release date: April 6, 2016
Engine design trends lead to increased demand for higher-octane gasoline
Since 2013, the share of premium gasoline in total motor gasoline sales has steadily increased, reaching 11.3%, the highest share in over a decade, in August and September 2015. While lower gasoline prices may be supporting demand for premium gasoline, the upward trend in sales is more likely driven by changes in fuel requirements for light-duty vehicles (LDV) in response to increasing fuel economy standards, which will have widespread implications for future gasoline markets (Figure 1).
The latest Corporate Average Fuel Economy (CAFE) regulations, which were finalized in October 2012, set automaker LDV fleet-wide fuel economy for model years 2017-21 to a range of 40.3-41 miles per gallon (mpg), with standards for model years 2022-25 rising to 48.7-49.7 mpg. To meet these standards, automakers are implementing a wide range of technical solutions to improve fuel economy. These solutions include, but are not limited to, weight reduction, conventional engine and transmission efficiency improvements, better aerodynamics, and further development and sale of hybrids and electric vehicles. One significant trend is engine downsizing coupled with turbocharging.
Smaller turbocharged engines can be used to raise fuel economy while meeting or exceeding the power and torque of larger engines, allowing engine downsizing and improved fuel economy with little or no performance compromise. Turbochargers work by using a turbine driven off the exhaust gas to pressurize the intake air. The pressurized intake air allows a turbocharged engine to produce more power compared with a naturally aspirated engine of the same size.
Because turbocharging forces more air into the combustion cylinder, it increases cylinder pressure and compression. However, because of increased compression there is an increased risk for engine knock (the premature and incomplete combustion of fuel), which can damage the engine. Therefore, turbocharged engines typically require more design and operational features to prevent engine knock than naturally aspirated engines.
The octane rating of gasoline is an indicator of its resistance to spontaneous combustion. The higher the octane rating, the greater the resistance to pre-ignition, the fundamental cause of engine knock. Use of higher-octane gasoline can offset the increased risk of engine knock caused by increasing engine compression. This is why premium fuel has historically been required in performance and luxury vehicles that maximize power and torque.
In model year (MY) 2009, turbocharged vehicles accounted for 3.3% of new gasoline-fueled LDV sales. By MY 2014, their share was more than five times greater, at 17.6% of the market (Figure 2). The growth in market share of turbocharged LDVs reflects increased use of turbocharged engines in popular vehicle models. For example, the previous generation Ford Escape (MY 2007-12) offered two conventional naturally aspirated engine options, a base 2.5 liter (L) four-cylinder and a 3.0L six-cylinder. The current Ford Escape (MY 2013 - present) added a 1.6L turbo four-cylinder as the most popular engine option, and replaced the six-cylinder option with a 2.0L turbo four-cylinder. The Honda Civic (MY 2016) for the first time has an option for a 1.5L turbo four-cylinder engine. In these cases, the turbocharged models have higher fuel economy and more power than the naturally aspirated engines they replaced or supplemented. This trend is expected to continue, and turbocharged engines are projected to account for 83.3% of the LDV market by 2025.
As automakers produce more vehicles with turbocharged engines, it is likely they will recommend or require more LDVs to use higher-octane gasoline. Engine models that require premium gasoline are designed to operate only on that fuel, and the use of regular gasoline risks damaging the engine. Engine models with premium gasoline recommended will achieve full performance levels using only the higher-octane fuel, but the use of lower-octane fuel will not compromise engine integrity. In MY 2010, 12.5% of the total gasoline-fueled LDV market recommended or required higher-octane gasoline. By MY 2013, higher-octane gasoline-fueled LDVs accounted for 14.2% of the total gasoline-fueled LDV market (Figure 3).
Premium gasoline sales as a percent of total gasoline sales are likely to increase as more car models either recommend or require premium gasoline as automakers increase the use of turbocharging as one strategy to comply with increasingly stringent fuel economy standards.
U.S. average retail regular gasoline prices increase, diesel fuel prices mostly up
The U.S. average retail regular gasoline price increased six cents from the week prior to $2.07 per gallon on March 28, down 38 cents from the same time last year. The West Coast price increased nine cents to $2.57 per gallon. The East Coast price rose eight cents to $2.02 per gallon. The Gulf Coast price increased six cents to $1.86 per gallon. The Rocky Mountain price rose five cents to $1.95 per gallon. The Midwest price increased two cents to $1.96 per gallon.
The U.S. average diesel fuel price increased less than a penny from last week to remain $2.12 per gallon, down 70 cents from the same time last year. The Rocky Mountain price increased four cents to $2.09 per gallon. The Gulf Coast and East Coast prices each increased one cent to $2.00 per gallon, and $2.18 per gallon, respectively. The West Coast price increased less than a penny to $2.32 per gallon. The Midwest price was the only regional decrease, down one cent to $2.08 per gallon.
Propane inventories gain
U.S. propane stocks increased by 0.6 million barrels last week to 62.8 million barrels as of March 25, 2016, 5.5 million barrels (9.5%) higher than a year ago. Gulf Coast and Midwest inventories increased by 0.7 million barrels and 0.2 million barrels, respectively, while East Coast inventories rose only marginally. Rocky Mountain/West Coast inventories decreased by 0.3 million barrels. Propylene non-fuel-use inventories represented 5.2% of total propane inventories.
Residential heating oil price unchanged, propane price decreases slightly
As of March 28, 2016, residential heating oil prices averaged $2.13 per gallon, virtually unchanged from last week and nearly 76 cents per gallon lower than last year's price for the same week. The wholesale heating oil price this week averaged $1.26 per gallon, just under 5 cents per gallon lower than last week and 59 cents per gallon lower than a year ago.
Residential propane prices decreased last week by nearly a penny per gallon to average almost $2.01 per gallon, 28 cents per gallon lower than one year ago. Wholesale propane prices averaged 51 cents per gallon, 2 cents per gallon lower than last week and nearly 13 cents per gallon lower than the price last year.
This is the last data collection for the 2015-2016 SHOPP heating season. Data collection will resume on October 3, 2016 for publication on Wednesday, October 5, 2016.
For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.
Retail prices (dollars per gallon)
| Retail prices | Change from last | ||
|---|---|---|---|
| 03/28/16 | Week | Year | |
| Gasoline | 2.066 | 0.059 | -0.382 |
| Diesel | 2.121 | 0.002 | -0.703 |
| Heating Oil | 2.131 | -0.001 | -0.756 |
| Propane | 2.008 | -0.006 | -0.284 |
Futures prices (dollars per gallon*)
| Futures prices | Change from last | ||
|---|---|---|---|
| 03/24/16 | Week | Year | |
| Crude oil | 39.46 | 0.02 | -9.41 |
| Gasoline | 1.466 | 0.039 | -0.332 |
| Heating oil | 1.198 | -0.041 | -0.530 |
| *Note: Crude oil price in dollars per barrel. | |||
| *Note: Markets were closed on 3/25/2016. | |||
Stocks (million barrels)
| Stocks | Change from last | ||
|---|---|---|---|
| 03/25/16 | Week | Year | |
| Crude oil | 534.8 | 2.3 | 63.4 |
| Gasoline | 242.6 | -2.5 | 13.4 |
| Distillate | 161.2 | -1.1 | 34.0 |
| Propane | 62.825 | 0.599 | 5.465 |