When you visit a gas station, you may notice that there are different gas options available.
While many consumers end up choosing unleaded gas, there are other options, too.
Premium is often the most expensive fuel option.
If you’ve never had a car that uses premium gas before, then you may wonder why it’s different and why it is more expensive than regular gas.
Why Is Premium Gas So Expensive? (10 Reasons)
Premium gas always tends to be a few dollars or at least a few cents more than regular or unleaded gas.
Some states even charge over $5 for premium gas.
The increased use of engines that use premium gas, the high costs of production, and problems with oil refineries all factor into the high price of premium gas.
Let’s look at these factors in more detail.
1. Higher Octane Rating
The reason that premium gas has a premium label attached to it is due to its high octane rating.
Premium gas has higher octane than regular gas.
A higher-octane rating means that the gas is easier on the engine and it’ll have an easier time starting up.
It puts less wear and tear on the combustion part of the engine.
Since your engine starts easier with premium gas, you’re often able to get better performance out of it.
That’s why a lot of performance engines use premium gas.
When you use gas that has less octane in it, then it means your engine has a greater chance of knocking or pinging.
Engines these days are more efficient, so the chances of knocking or pinging are a lot less common.
In older cars, however, knocking was an issue.
Knocking or pinging is problematic because it adds stress to the car.
The engine isn’t as efficient at starting up.
Besides wearing down the engine a bit faster, it also uses a bit more fuel.
The problem with having more octane in the gas is that octane is expensive to produce.
Since premium gas has a higher amount of octane in it, it’s more costly to make.
As a result, premium gas is more expensive.
Premium gas is expensive because of its high octane rating.
2. Expensive Alkylate Costs
Another major reason behind high premium gas costs is the price of alkylate.
A lot of companies have chosen to use alkylate because it’s rich in octane.
The problem with alkylate is that it’s extremely expensive.
One of the benefits of using alkylate to make premium gas is that it burns clean.
This is different from other additives.
As more states begin to regulate carbon emissions of cars, gas manufacturers are looking for better ways to make gas that complies with those regulations.
Otherwise, they’re out of the market.
Alkylate is one such method.
The problem with alkylate is that it’s a highly sought-after chemical used in different industries.
While alkylate is useful in gas for cars, it’s also useful for making aviation fuel.
As such, you have two big markets competing with one another for access to alkylate.
That drives up the price since there’s a lot of demand in both sectors with only a limited supply.
Alkylate is also used in the agricultural industry.
It’s a useful ingredient in making pesticides or fertilizers to promote crop growth and reduce crop damage.
That’s another big industry that is buying as much alkylate as possible.
Since there’s a lot of demand and only so much supply available, it’s driving up the price of alkylate.
With the high price of alkylate, making premium gas with it is also expensive.
This means premiums gas is going to be expensive because manufacturers need to cover their costs.
3. More People Buying Luxury Cars
Another reason premium gas is expensive is that more people have been buying luxury cars.
While COVID-19 devastated the finances of some people, it also allowed other people to save money.
Some didn’t have to pay rent or mortgages.
Others didn’t have to pay back student loans.
By saving a good amount of money for nearly two years, certain people found themselves with enough cash to purchase a luxury car.
Sales of top-tier luxury cars even increased by 35.6%.
This has led to an increase in premium gas prices because it means there are more people on the road who want to use premium gas.
There are two types of luxury car drivers when it comes to fueling up.
Some only use premium gas to clean out the engine now and then.
Others use premium gas exclusively.
Back in the day, if you were to top off an older car with premium gas, then it would have engine problems.
That isn’t the case anymore.
Even luxury cars can typically take regular gas without adverse effects.
You might not get as much performance out of it, but you’ll still be able to use your car.
Since there are more people driving luxury cars these days, it means more people are likely to fuel their cars with premium gas.
That means there’s a higher demand for premium gas.
With supply levels low and moderate demand, it means the price of premium gas is going to increase by quite a bit.
Luxury cars are also built to last.
As such, the demand for premium gas isn’t going to go down any time soon.
If supply doesn’t match demand soon, then the price of premium gas is only going to increase as more people buy luxury cars.
Premium gas is expensive because of the recent increase in luxury car purchases.
4. Fuel-Economy Standards Causing More Engines To Use Premium Gas
Another driving force behind the high price of premium gas is the turn toward better fuel economy for cars.
There has been a lot of effort on the state level to regulate carbon emissions from cars.
One of the ways that states have tried to regulate it is by pushing car manufacturers to make cars with better fuel economy.
Fuel economy refers to how many miles a car can travel using one gallon of gas.
The less gas that a car uses, the cleaner it is.
That usually means that gas manufacturers don’t need to make as much gas.
That’s less taxing on the environment since they need to do less mining and drilling.
It also usually means that the car is burning less carbon into the environment.
Because of these standards, car manufacturers have made many engines far more efficient.
Even cheaper cars have decent gas mileage these days.
This impacts premium gas prices because, in many cases, those cars end up using premium gas, too.
Although they don’t need to use premium gas, some car owners might top off with premium gas from time to time.
Because their engines are more sophisticated and better, they’re able to use premium gas without having problems.
That increases the number of people using premium gas.
When premium gas demand increases and supply remains about the same, then you’re going to have higher prices on premium gas.
Premium gas is expensive because of the recent push toward making more fuel-efficient cars.
5. Low Production Of High-Octane Fuel
One of the biggest factors impacting the price of premium gas is the fact that there’s low production of high-octane fuel.
For a long time, it was simply because there wasn’t enough demand to warrant large-scale production.
As more luxury cars and better engines have started using premium gas, however, that’s changed.
There’s more demand for it now than ever before.
Besides already having a small number of manufacturers, there’s another problem impacting the production of high-octane fuel.
The process of manufacturing high-octane fuel is extremely costly.
It isn’t as efficient to make high-octane fuel as it is to make regular fuel.
As such, it’s cheaper to make regular fuel.
Businesses don’t want to add unneeded costs to their production processes if they can help it.
To make high-octane fuel, they’ll have to add considerable cost.
Another factor is the fact that gas manufacturers end up producing naphtha.
Naphtha used to be something that the plastics industry and other industries bought in great amounts.
Since gas companies produced it while making premium gas, they were able to make some extra money by selling naphtha.
Unfortunately, the plastics industry has turned away from using naphtha.
This has led gas producers to mix naphtha within their gas to create low-octane fuel.
There’s a greater incentive to just produce low-octane fuel since it costs a lot less.
As a result, the supply of premium gas remains small.
With a low supply and moderate demand, the price of premium gas increases.
6. Gas Station Markups
While a lot of the reasons behind high premium gas prices have to do with production costs, it’s also worth mentioning gas stations.
Gas stations, ironically, don’t make a lot of money from gas.
Crude oil companies get the bulk of the money.
At most, gas stations make anywhere from one cent to three cents in profit per gallon of gas.
While that can change based on the specific gas station, it’s obvious that most gas stations aren’t profiting on gas alone.
However, gas stations do put a markup price on their gas, and that is one of the reasons why premium gas is expensive.
Their markups may not be large, but it does add to the cost of premium gas.
If you really want someone to blame for high premium gas prices, however, then you should look at crude oil companies.
They take over 51% of the money that you pay for gas.
Since they’re also the ones who determine how expensive oil is to buy, they’re setting the price of fuel.
That’s because gas stations and companies have to buy gas from them.
If it’s expensive to buy gas from a supplier, then you can be sure that gas stations have to markup their own gas supplies a bit higher to make up for that cost.
Premium gas is expensive because of gas stations and crude oil markups.
Inflation certainly plays a role in making premium gas expensive, too.
The problem with inflation is that it makes the price of everything more expensive.
Premium gas becomes more expensive because of all the various materials and processes required to create premium gas becomes more expensive.
Everything from alkylate to transport costs to labor wages becomes more expensive.
Since premium gas becomes more expensive to make, then manufacturers have to cover their costs with higher premium gas prices.
Even something as seemingly minimal as the production of oil barrels can impact the price of premium gas.
Since it costs more to make oil barrels, oil companies end up spending more.
Since they spend more, they charge more.
The cycle continues until the consumer ends up paying the final high price.
Premium gas is expensive because of inflation.
8. Reduced Oil Refinery Production
Another factor that impacts the price of premium gas is the fact that oil refinery production has also declined.
The COVID-19 pandemic is largely to blame for that.
When COVID-19 caused cities to shut down, there were fewer people driving on the roads.
Since there were fewer people driving, supply ended up surpassing demand.
Gas prices plunged.
To save money, oil refineries either let go of workers or shut down entirely.
When lockdowns ended and people started driving again, the demand for gas quickly returned.
However, oil refineries weren’t ready to become operational again.
Some were undergoing maintenance during the lull.
Others needed to find more workers again.
Some had completely shut down.
There was a significant delay in getting gas supplies back up to normal.
Even now, oil refineries still aren’t producing at full capacity.
Some of this is because of the recent push toward electric vehicles.
Some oil companies are anticipating the need for less oil and gas in the future.
They’ve started to scale back operations already.
This has impacted the price of premium gas because it means there’s less supply of it in the market.
Demand for premium gas is still quite high.
As a result, the price of premium gas is expensive.
9. Premium Cars Last Longer
Modern cars are able to endure more miles than ever.
They last longer which also impacts the price of premium gas.
When cars last longer, it means there are more of them on the road.
Used cars become cheaper to sell, so more people can afford them.
With more people on the road, some of them are going to need to use premium gas.
Premium cars have a long lifespan.
Luxury cars and performance cars use high-quality parts in their production.
Since they last longer, it means that owners use them more often and use more premium gas during the car’s lifespan.
If the owner should sell the car, then the new owner will also likely get a lot of use out of it since cars now last for a long time.
Since it’s still in use, it’s still using premium-grade fuel.
With high-quality cars that use premium gas lasting longer, it means there are more of them on the road.
This makes premium gas expensive because it means more people are using premium gas.
10. High Gas Taxes
A final reason why premium gas is expensive is because of the amount of taxes on it.
Both the federal government and state governments impose taxes on gas.
Some state governments have higher taxes on gas than even the federal government.
These taxes are added to the total price you pay for premium gas at the pump.
To make a profit, gas stations have to have higher prices on premium gas.
Otherwise, the taxes that they need to pay would eat into their bottom line.
Since the federal and state governments can change how much they charge, gas may be more expensive in some places than others.
If the tax rate is high, then you can expect higher prices on premium gas.
Premium gas is expensive because of expensive gas taxes.
Premium gas is a type of fuel with a high-octane rating that makes engines start easily and run more efficiently.
However, premium gas is expensive due to production costs, taxes, and other factors listed above.