Oil traders piled onto the downside driving oil into bear market territory in a July crude oil future expiration sell off that will be one to remember. The market is still struggling and not even the fact that we have Tropical Storm Cindy pulling into refinery row, a major political shake up in Saudi Arabia and the fact that we are already seeing shale oil producers start to feel the pain of lower oil prices seems to be helping. We also saw supportive data from the American Petroleum Institute (API) for oil but with the mood as bad as it is, it didn’t do much to elevate prices.

Mohammed bin Salman, or (MBS) as he is known, was named the new Crown Prince of Saudi Arabia and heir to the throne by Saudia Arabia’s King Salman in a move that was not a surprise but does have far reaching consequences for the future direction of the Kingdom. Oil traders are already aware of MBS and his brash personality. Last April the 31-year-old basically pulled out of the DOHA oil accord, angering both friends and foes alike, as they all came to sign an oil agreement that was already agreed to before seasoned OPEC and non-OPEC ministers came to sign on the dotted line. Khalid al-Falah seems to be working better with all the players in the OPEC and non-OPEC accord. Crown Prince MBS is also the architect of the 20-year plan to get the Saudi economy off oil exclusively, leading the privatization and the initial public offering of Saudi Aramco. Bottom line MBS is a young brash, agrarian and aggressive and it may keep tensions hot with Qatar and Iran.

Tropical Storm Cindy is not going to be a major storm but could still cause problems for oil and gas. The Weather Channel says that Tropical Storm Cindy is maintaining its strength in the central Gulf of Mexico, and it will be a soaker, bringing potentially life-threatening flooding concerns to parts of the Gulf Coast through late this week. Gusty winds, rip currents and isolated tornadoes are also expected. They say that a tornado watch is in effect for southern Alabama, southern Louisiana, southern Mississippi and the Florida Panhandle until 10 a.m. CDT. This watch area includes New Orleans, Mobile, Alabama, and Pensacola, Florida. A tropical storm warning has been issued from San Luis Pass, Texas, to the Alabama-Florida border, including Lake Pontchartrain, which means tropical storm conditions are expected within 36 hours. This warning area includes New Orleans, Houston, Galveston, Texas, Lake Charles, Louisiana, Lafayette, Louisiana, Biloxi, Mississippi, and Mobile, Alabama. Tropical storm conditions are beginning to be experienced within the warning area and will spread westward within the warning area through early Thursday.

The API is reporting supportive data. Crude -2.72, distillate +1.837, gasoline +346, Cushing -1.269. Of course, the Energy Information Administration may be the deciding factor as to whether we are at a bottom or we continue to go into a rut. The Energy Information Administration is reporting that the differences between U.S. average retail prices for premium and regular gasoline reached 50 cents per gallon in late 2016, and it has remained near that level so far in 2017. This price difference, or spread, has been generally increasing since 2000. Many factors on both the supply and demand sides are influencing this trend.

One of the main performance characteristics of motor gasoline is octane, a measure of gasoline’s resistance to spontaneous combustion. In the United States, retail gasoline is usually classified by its octane rating: regular gasoline with a typical octane rating of 87 is the least expensive option, and premium gasoline with a typical octane rating of 91 to 93 is the most expensive option. The price spread between the two grades of gasoline is most often representative of the cost to produce the additional octane.

On the demand side, the premium gasoline share of total motor gasoline sales has steadily increased in recent years, reaching a high of nearly 12% in August 2016—the highest share since 2004. Although lower gasoline prices may be making premium gasoline more affordable, thereby encouraging demand, the upward trend in premium gasoline sales is more likely driven by changes in fuel requirements for light-duty vehicles in response to increasing fuel economy standards. To meet these standards, more car manufacturers are producing models with turbocharged engines that may require or recommend the use of high-octane gasoline.

This long-running trend has occurred at the same time as costs to produce and supply octane for gasoline have increased. Energy policy reforms in recent years have promoted the widespread use of ethanol as a source of octane in gasoline, replacing previous octane sources such as tetraethyl lead and methyl tertiary-butyl ether (MTBE). However, there is limited demand for, and challenges associated with, blending ethanol into gasoline in concentrations greater than 10%. Ethanol inputs as a percentage of total gasoline consumed approached 10% in 2013 and have since plateaued, even as the demand for higher octane blends increased.

The combination of increasing demand for premium gasoline and market challenges to further increases in ethanol blending has led refiners and blenders to acquire more expensive sources of octane, leading to an increase in the price differential between premium and regular gasoline in recent years.