You, too, can arbitrage the premium-midgrade-regular gasoline price spread

Michael Giberson

At Overcoming Bias, Robin Hanson discovers he can save money by mixing premium and regular gasoline rather than buying the mid-grade product, and if you buy mid-grade gasoline for your car then you may be able to save money too.

The opportunity to save depends on the relative octane ratings and prices of regular, mid-grade, and premium. Hanson found: “For regular, mid-grade, premium, the $/gal. prices were 1.77, 1.92, 2.02 , while the octane ratings were 87, 89, 93. So the first jump gives you 2 octane points for $0.15, while the second jump gives you 4 octane points for only $0.10. Since mixing gas averages the octane ratings, if you mix 2/3 regular with 1/3 premium, you make your own mid-grade gas for only 1.85, saving 0.07.”

According to this paper “Relative Gasoline Prices: Octanes and Arbitrage,” cited by Hanson, your effective wage rate for the slight bit of extra trouble could be as much as $340/hr. And if you adopt Hanson’s easy-to-do alternating fill-ups approach rather than the analyzed two-part transaction approach in the paper, you can save money without spending any extra time.


4 thoughts on “You, too, can arbitrage the premium-midgrade-regular gasoline price spread

  1. The comparisons are based on cost per gallon, which is the way we buy fuel. However, the way we use fuel is by the mile. Cost per mile is the relevant measure.

    My home state of Wisconsin mandates 10% ethanol in the regular and mid grade gasoline. Premium is still ethanol free.

    Ethanol degrades mileage so badly that premium ends up being cheaper on a per mile basis.

  2. I do the same thing with E85. E85 is anywhere from 100 to 105 octane (depending on the season), and WAS 50 cents per gallon cheaper than regular gas at the height of the insanity this summer.

    So a few gallons of E85 mixed with regular gave a premium octane. The decline in mileage was on the order of a mile or two per gallon. Overall savings was a few bucks per tank.

    This is all documented in my blog.

  3. Who needs peremium or midgrade? Every modern car has a knock sensor that will retard the timing in the event of incipient knock, and most cars only encounter knock under heavy load, wide-open throttle conditions. So if you don’t step on it, you won’t need premium or midgrade, and if you do step on it, you’ll encounter a brief but minor horsepower loss.

    If you don’t want that handicap, I’d like to see a system whereby a couple of litres of octane booster are carried on a car, and injected as needed to the otherwise low-octane fuel, because using premium fuel all the time when you only need it 1-2% of the time is a foolish waste of money. Having a fleet carrying 80-octane fuel with a little bit of booster juice would have large effects on the operating cost and performance of refineries.

  4. Who needs peremium or midgrade? Every modern car has a knock sensor that will retard the timing in the event of incipient knock, and most cars only encounter knock under heavy load, wide-open throttle conditions. So if you don’t step on it, you won’t need premium or midgrade, and if you do step on it, you’ll encounter a brief but minor horsepower loss.

    If you don’t want that handicap, I’d like to see a system whereby a couple of litres of octane booster are carried on a car, and injected as needed to the otherwise low-octane fuel, because using premium fuel all the time when you only need it 1-2% of the time is a foolish waste of money. Having a fleet carrying 80-octane fuel with a little bit of booster juice would have large effects on the operating cost and performance of refineries.

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