Gasoline Price At The Pump
Factors That Determine Gasoline Prices
Even though most people think that the prices of crude oil establish the cost of gasoline, there are several other factors involved that decide what you will pay at your local gasoline station. If you track the gas prices you will find that compared to the other months in a year, summer months with have usually have higher prices. This is due in part to a lower supply and also a higher demand. There are other external factors such as wars and natural disasters (like Hurricane Ike this past week) which are responsible for the fluctuating gasoline prices.
The money that you pay at the gas station is inclusive of taxes, marketing and distribution costs, refining costs and the crude oil prices. According to US Department of Energy, each dollar that you spend on gas is broken down like so:
Crude oil: $.73 cents
Refining: $.10 cents
Distribution/Marketing/Profits: $.06 cents
Taxes: $.11 cents
Crude Oil:
According to the media, the most significant component that affects the gas prices is the cost of crude oil. OPEC determines the price per barrel depending on the production and the demand for the product. Gasoline prices are volatile and get affected by market conditions, political conflicts and disruption in supplies.
In the last few months, we have seen oil prices spiral out of control with. This number peaked in July as $147.27 dollars per barrel. Today the prices have stabilized a little bit more and are currently around $100 dollars per barrel. It is also important to note that China and India are increasing the global demand for gasoline by a lot. This is due in large part to their fast growing economies and increasing middle class.
Refining Costs:
Crude oil in its natural state is not a usable petroleum product. It has to be brought to refineries where it is then created into products such as diesel fuel and gasoline. A limited number of refineries are available in the United States, so when a hurricane hits (like we saw in Katrina) and wipes out one, this drops the nationwide capacity. Another problem is that no knew refineries have been built in the United States for years, mostly due to the pollution caused by them. In a large sense, it is an issue of refining capacity because this is the limiting factor in gasoline production.
Distribution/Marketing/Profit:
The cost of transporting fuel from the refineries to the retail gasoline stations is significantly high because most refineries are located far away from their distribution points. These costs along with brand marketing costs are passed onto the customer. Retailers typically add 5%-10% for profit margins to these costs to determine the final price of the gas that you pay at the gas stations.
Taxes:
Tax on gasoline is quite high. Federal Excise Taxes come to $.184 cents per gallon and State Excise Taxes typically range from $.096 cents to $.0175 cents per gallon depending on where you live. Other taxes include an oil inspection fee, storage tank fees, and sales tax bringing the total tax amount to around 52 cents per gallon.
It is important to note that there are several other factors that affect the prices consumers pay at the pump, besides the ones mentioned above. Additives such as ethanol are typically more expensive than conventional gasoline. All these components combined together determine the price of gasoline in United States.
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
You know, I have to tell you, I really enjoy this blog and the insight from everyone who participates. I find it to be refreshing and very informative. I wish there were more blogs like it. Anyway, I felt it was about time I posted, I