BRIGGS: Breaking Down Gasoline Prices

The general public often thinks the President of the United States has a button or lever that he can simply adjust gasoline prices higher or lower. This, however, is simply not the case. Many factors go into the breakdown of a gallon of gasoline. International geo-political matters, the price of crude oil and state and federal taxes are just a few items that play into the price of gasoline.

As the majority of the United States’ crude oil supply has been imported from the Middle East for the past several decades, instability in that region of the world has cost American’s at the pump. How? The daily price for a barrel of crude oil is the largest cost contributor for the price of a gallon of gasoline. So as wars and rumors of wars have taken place in Iraq, Iran, Saudi Arabia and Israel, the price for crude oil has continually risen.

As the United States is experiencing the current shale revolution and crude oil is being explored and produced in shale plays like the Bakken and Eagle Ford, relief at the pump is a down-the-road hope. As U.S. crude oil imports fall, hopefully, U.S. gasoline prices will follow suit.

As crude oil is the largest contributor to the price of a gallon of gasoline, we can now break down the price more specifically. For a visual example, if a gallon of gasoline cost you the consumer $4.21 at the pump, here is the breakdown for the cost involved:

  • Crude oil: $2.66
  • Distribution and marketing cost, profits: $0.19
  • Refinery cost and profits: $0.71
  • State underground storage and tank fee: $ 0.02
  • State, local sales tax: $0.09
  • State excise tax: $0.36
  • Federal excise tax $0.18

All of the costs together help us reach a retail price of $4.21. So now the question is answered as to why prices fluctuate by city, parish/county and by state. So for example, California’s taxes and storage fees might be much greater than those of Mississippi or Kentucky.

Some other factors that must be considered in the mix of the prices are the different blends of fuel that the Environmental Protection Agency (EPA) requires for different times of the year. Winter blends of fuel are often less expensive than those that are used in the summer months. Hence the reason for higher prices at the pump for holiday weekends that happen to fall in the summer, such as the Fourth of July or Labor Day weekend.

Also, scheduled and non-schedule shut downs at the refineries can drive the price of gasoline up. When a refinery goes offline for yearly maintenance or when a super storm strikes an entire region of our country, the price is driven up due to a simple supply and demand issue. Less fuel is being produced at the refineries, the demand is still great, and prices can go up. This is not price gauging, it is simply the market adjusting, as we would see in any commodity market. Gasoline prices might not drastically come down in the very near future, but our country is on the right path to reducing this necessary cost: our gasoline bill.

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