What Goes into the Price of Gasoline?
Gasoline prices are one of the more mysterious consumer conundrums of modern life. Up, down, up down – it seems like you never know what to expect when you scoot into the station for your weekly fill-up. Many in the media associate gas prices with crude oil prices worldwide, but this is only part of the story. So when you buy gas, where does your dollar go? The answer lies in the supply chain.
Crude Oil
As the base product in the gasoline you pay for at the pump, crude oil makes up around 73% of your gasoline dollar. But the fluctuating cost of this precious resource is anything but crude. To start with, there are several different kinds and qualities of crude oil – all of which are priced differently. Sweet, sour, heavy and light are just a few of the types of crude oil – and all of them require very different refining techniques, with the overall cost of refining light, sweet crude hitting almost double that of its heavier counterpart, sour crude.
Distribution and Publicity
The cost of moving gasoline around – both physically and in terms of how it’s sold to a market inundated with choice – constitutes around 6 cents in every dollar you pay to fill your car. A truly global commodity, crude oil is shipped all around the world by suppliers competing for an ever-hungry market. Refineries compete for lucrative refining contracts which could see the base product travel thousands of miles before it becomes saleable gasoline. From refineries, gas is shipped to massive distribution sites where it’s stored for the next stage in its journey to your car – the trip to the gas station. Interestingly enough, remote gas stations pay up to 10% more for the final product, so it’s always worth stocking up in the big cities before heading out on a long trip.
Publicity is another big factor in the price of gasoline. We only need to switch on the TV or radio, or jump online for a few minutes to get an idea of the huge sums of money oil companies are willing to spend to create brand loyalty amongst consumers. When the cost of marketing campaigns driven by distribution companies – gas station chains – is considered, it’s easy to see how another 6% of your gasoline dollar is evaporated. This also underlines how price wars can break out as different brands fight for that ever valuable commodity known as market share.
Taxes
Taxes are the final piece of the puzzle when it comes to knowing where your gas money goes. In the United States, taxes vary from state to state but on average make up around 11% of the price of gas. If that sounds a bit heavy-handed, spare a thought for motorists in Europe and Australia, where taxes can reach as high as 30% of the total cost! Overall, gasoline taxes can include federal and state excise taxes, state sales taxes, fees for oil inspection, gross receipts taxes, storage tank fees and other miscellaneous environmental costs.
The next time you break out your cash or credit card at the gas pump, remember that it’s much more than crude oil that influences what you pay.
