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Gasoline, one of the main products refined from crude oil, accounts for just about 17 percent of the energy consumed in the United States. The primary use for gasoline is in automobiles and light trucks. Gasoline also fuels boats, recreational vehicles, farm equipment and various type of other equipment.
While gasoline is produced year-round, extra volumes are made in time for the summer driving season. Gasoline is delivered from oil refineries mainly through pipelines to a massive distribution chain serving 167,000 retail gasoline stations throughout the United States.
There are three main grades of gasoline: regular, mid-grade, and premium. Each grade has a different octane level. Price levels vary by grade, but the price differential between grades is generally constant.
What are the components of the retail price of gasoline?
The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and finally the retail station costs and taxes. The prices paid by consumers at the pump reflect these costs, as well as the profits (and some- times losses) of refiners, marketers, distributors, and retail station owners.
In 2003, the price of crude oil averaged $28.50 per barrel, and crude oil accounted for about 44% of the cost of a gallon of regular grade gasoline. In comparison, the average price for crude oil in 2002 was $24.09 per barrel, and it composed 43% of the cost of a gallon of regular gasoline. The share of the retail price of regular grade gasoline that crude oil costs represent varies somewhat over time and among regions.
What Do We Pay for in a Gallon of Regular Grade?
Federal, State, and local taxes are a large component of the retail price of gasoline. Taxes (not including county and local taxes) account for approximately 27 percent of the cost of a gallon of gasoline. Within this national average, Federal excise taxes are 18.4 cents per gallon and State excise taxes average about 21 cents per gallon. 2 Also, eleven States levy additional State sales and other taxes, some of which are applied to the Federal and State excise taxes. Additional local county and city taxes can have a significant impact on the price of gasoline.
Refining costs and profits comprise about 15% of the retail price of gasoline. This component varies from region to region due to the different formulations required in different parts of the country.
Distribution, marketing and retail dealer costs and profits combined make up 14% of the cost of a gallon of gasoline. From the refinery, most gasoline is shipped first by pipeline to terminals near consuming areas, and then loaded into trucks for delivery to individual stations.
Some retail outlets are owned and operated by refiners, while others are independent businesses that purchase gasoline for resale to the public. The price on the pump reflects both the retailer’s purchase cost for the product and the other costs of operating the service station. It also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.
About the Author
Pierre Schexneider is president of The Schexneider Group, LLC an E-commerce consulting business. As a consultant his research abilities have afforded him many opportunities to expand his knowledge base. For gas saving tips please visit:
How to Save on Gas
Written by: Pierre Schexneider M. Ed.
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A PRIMER ON GASOLINE PRICES