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Why gas prices drop in autumn

Fall almost always brings relief at the gasoline pump. Pundits frequently notice this phenomenon during election years, and assume that vested interests are trying to manipulate prices to win elections, Rapier writes. But there is a more straightforward explanation to what’s going on.

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More Butane, Cheaper Gasoline

Butane has an RVP of 52 psi, which means pure butane is a gas at normal pressures and temperatures. But butane can be blended into gasoline, and its fractional contribution to the blend roughly determines its fractional contribution to the overall vapor pressure of the mixture. As long as the vapor pressure of the total blend does not exceed normal atmospheric pressure (again, ~14.7 psi) then butane can exist as a liquid component in a gasoline blend.

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But with a vapor pressure as high as 52 psi, butane can’t make a large contribution to summer blends where the vapor pressure limit is 7.8 psi. For example, if a gasoline blend contained 10 percent butane, butane’s contribution to the vapor pressure limit is already 5.2 psi and you would still have 90 percent of the blend to go. It isn’t feasible to blend much butane into gasoline when the vapor pressure requirement is low. But when the limit increases by 5 or 7 psi, it becomes feasible to blend large quantities of butane.

Why do we care about blending butane anyway? Because it is abundant and cheap. Butane can routinely trade at a $1/gallon discount to crude oil or gasoline. Butane is a byproduct of oil refining, but is also a component of natural gas liquids (NGLs), which are condensed out during natural gas production. Given the huge expansion of natural gas production in the US, it should come as no surprise that NGL production is also on the rise.

Thus, butane lowers the cost of producing gasoline in the “winter” blends. Not only is it cheaper, but because butane can be blended at higher levels after September 15th the gasoline supply effectively increases. For example, in the summer a gasoline blend might only contain 2 percent butane. In the fall, that gasoline blend might contain 10 or 12 percent butane, which can reduce the cost of production by a dime a gallon — and further reduce the price because gasoline supplies have increased by 10 percent due to the inclusion of butane.

The Perfect Storm

On top of that, this transition takes place after the high demand summer driving season has passed. Hence, supplies increase and cost less to produce just as demand falls. This perfect storm takes place every fall, and will generally drive down the cost of gasoline for consumers.

Sometimes other factors can trump this perfect fall storm. In 2005, another perfect storm called Hurricane Katrina caused more than enough problems to trump the normal seasonal effect of falling prices. Occasionally hurricanes or geopolitical events will have a big enough impact on oil prices that the seasonal effect is diminished or eliminated.

But more often than not, falling leaves are accompanied by falling gasoline prices, and now you know why. Enjoy it while you can, though. Spring always brings an end to this perfect storm when the RVP specification steps back down on May 1st — increasing costs and decreasing supplies just in time for the start of the heavy demand summer driving season.

Link to Original Article: Why Gasoline Prices are Falling

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