Next time you pull up to the pump at your favorite gas station and fill your tank full of fuel, you'll know who's pockets the large amount of money you just paid is going into. Many people probably think that the gas station owner is making pockets full of money from the high gas prices but you are mistaken. The gas station owners are actually making very little money from the gas they sell.
Who gets what percentage of your money when you pump one gallon of gas? The price of one gallon of gasoline is determined by a number of factors.
Listed below are the components of the price of one gallon of gas from largest to smallest percentage:
Crude Oil. This one certainly composes the biggest chunk of a cost of a gallon of gas. According to the Energy Information Administration, crude oil composed 58% of the price of the national average of the price of a gallon of gasoline in 2007. This percentage has increased from an average of 48% between 2000-2007. The amount of crude oil produced by the Organization of Petroleum Exporting Countries (OPEC) generally determines the price of a barrel of oil. As of this morning, the cost of a barrel of crude oil is $139.
Refining. The cost to refine crude oil consists of about 17% of the cost of a gallon of gas. This cost varies in different parts of the country due to the different gas formulation requirements. Crude oil must be refined to make it useful for gasoline.
Taxes. Gasoline is taxed not only by the Federal government but also by State and local governments. Taxes compose approximately 15% of the cost of a gallon of gasoline. Eleven States also levy additional State sales and other taxes; some of which are applied to the Federal and State excise taxes. The differences in State taxes generally account for the difference in gas prices from state to state.
Distribution, Marketing and Retail Dealer Costs. The cost to ship and distribute gasoline to your local gas station is about 10% of the cost of a gallon of gas. Crude oil is first shipped to refineries via pipelines and then is refined into gasoline. It is then sent to a distribution point and then shipped via tanker trucks to the local gas station. Oil companies are in competition with each other and the cost of advertising their product is passed along to consumers. The cost of advertising and the retailer markup is included in the 10% figure.
Why do gas prices fluctuate?
The price of gas tends to fluctuate due to a number of factors like:
Season. Gas prices are generally higher in the summer due to more people being on the road travelling for summer vacations.
Crude Oil Supply. Crude oil prices are determined by worldwide supply and demand. When demand is low and there is plenty of crude oil, prices are lower. When the production is low and demand for crude oil is increased, prices will rise.
(Sources: Energy Information Administration, US Department of Energy)