Thread: The Price of a Gallon of Gasoline

What am I paying for in the price of a gallon of gasoline?
January 27, 2012 | Posted by Ken Cohen

I’m asked this question a lot. And I know a lot of drivers ask themselves this question when they pull up to the pump.



The answer is based on the economics of supply and demand and how products are manufactured and sold – along with what the government takes in taxes. Let’s take a look, based on the U.S. Energy Information Administration’s breakdown of the estimated average price of a gallon of gas in December 2011, which was $3.27.




Raw materials = $2.62

The cost of the raw materials used to make a product has a major impact on the final product price. The raw material for gasoline is crude oil. The price of crude oil is set by global markets, where buyers and sellers constantly react to supply and demand factors. Oil is just one of many commodities traded every day in the global market. Others are the corn that affects the price of food and the cotton that affects the price of clothing.

Crude oil is by far the largest factor in the price of a gallon of gasoline – accounting for 80 percent of the $3.27 average retail price per gallon in December, according to the EIA.

To put that in another way – about $2.62 of the average gallon of gas in this example is set before a refiner even touches the raw material.

Where I find many people get confused is that they assume oil companies are producing all the oil that goes into their own refineries – and therefore can control gas prices by controlling the supply chain. That’s not the case.

U.S. crude oil production in 2010 was 5.5 million barrels per day. But U.S. refineries processed 15.2 million barrels of oil per day – almost three times more oil than was produced in the U.S. That means U.S. refiners, like ExxonMobil, have to purchase millions of barrels of crude oil – at market prices – to produce gasoline and other products for American consumers. For example, in 2010, ExxonMobil spent $198 billion purchasing oil around the world for its refining operations.



Manufacturing the product

Like any product, there are costs to manufacture it – so the manufacturer tries to recover those costs, plus make a profit, when it goes to sell the product.

The refining portion of a gallon of gasoline has, on average, accounted for about 11 percent of the price in 2011, according to the EIA data through December. That means a little less than 40 cents per gallon would be due to refiners’ costs – wages, equipment, financing and others – plus their profits.

As the EIA figures show, however, refining doesn’t always produce a profit. In December, the data indicate that the U.S. market price for gasoline coming out of refineries was on average about 7 cents per gallon (-2 percent) below the refiners’ cost of crude oil alone, and before accounting for their costs of upgrading the crude into gasoline. In other words, refineries faced a market where domestic gasoline prices were very weak relative to global crude prices.

How does that happen? Refiners are “price takers” that operate on relatively low profit margins that are highly dependent on the market demand for petroleum products. That means at times, the value of a petroleum product coming out of the refinery isn’t enough to cover the costs of obtaining and refining the crude oil.




Distributing and marketing the product = $0.33

Products then have to get from the manufacturing site to the retail site. When gasoline leaves the refinery, it is shipped largely via pipelines to local terminals. There, distributors load their trucks and transport the gasoline to a service station. Naturally, each step in the distribution chain includes labor, capital equipment and other expenses that must be recovered by operators. Of course, these operators must also compete to sustain their profitability while also paying taxes.

Retailers then set the price at the pump, based on recovering these costs of getting gasoline to the service station and the costs of marketing it to consumers. They also have to generate enough money to pay their taxes and make a profit to keep their business running. And on top of that, they have to collect mandatory state and federal gasoline taxes from the consumer (which we’ll break down in the next section).

So who are the retailers setting the prices? When consumers pull into an Exxon or Mobil station, they assume it’s ExxonMobil. But we own only about 5 percent of the stations with our name on them. About 95 percent of the stations carrying the Exxon or Mobil brand are actually owned by network retailers or local business owners – not ExxonMobil.



Taxes = $0.39

So how much does the government make on a gallon of gas?

In this example, retailers collected state and federal gasoline taxes of 39 cents per gallon on average. Total gas taxes per gallon range by state – from lows of less than 30 cents per gallon to highs of more than 60 cents per gallon in places like New York and California.

How does this compare to what a company like ExxonMobil makes on a gallon of gasoline? As we saw earlier, sometimes a company or an operation may lose money. Other times, it may make money. A competitive market just provides an opportunity, not a guaranteed profit. In the first two quarters of 2011, for example, ExxonMobil made 7 cents and 8 cents a gallon , respectively, on the gasoline, diesel and other petroleum products it refined and sold in the United States.

What actions could help lower gas prices?

Again, let’s go back to the economics of supply and demand that govern the crude oil market, since it’s the largest determinant of the price at the pump.

There are many global factors that affect the crude oil market. But adding more supplies of crude oil to the global marketplace can help put downward pressure on the price of a barrel of oil. The United States has abundant supplies of oil, from the deep-water regions of the Gulf of Mexico to the tight oil resources throughout North Dakota and Montana. Combined with Canada’s oil resources (one of the largest in the world), North America has enormous potential to add new reliable supplies to the market. And, the U.S. has one of the largest and most advanced refinery systems in the world.

But first, the oil needs to get to market. There, we’ve often seen economics trumped by politics – even as the U.S. economy remains weak. The recent moratorium in the Gulf of Mexico, as well as the decision to deny the permit for the Keystone XL pipeline from Canada to U.S. refineries, are just two examples of U.S. political decisions that serve to keep supplies out of the market.

The economics behind a gallon of gas are pretty straightforward. It’s the policies behind access to U.S. energy resources that are less certain – but critical to our energy future.

http://www.exxonmobilperspectives.co...n-of-gasoline/

Gas Prices Outside White House March, 2012



A picture is worth a thousand words and this one speaks volumes. On March 13, The Weekly Standard posted the following photo of an Exxon gas station's price marquee. The station is within walking distance of the White House and the listed price for its Supreme grade is frighteningly pushing $6.

Washington DC Gas Prices confirms the price for regular grade at $5.39 on March 13. The station is located at 2708 Virginia Ave NW and Rock Creek Pkwy.

http://news.yahoo.com/inconvenient-p...030327852.html

Americans Angry With Obama As Gas Nears $4 A Gallon
By Henry Blodget | Daily Ticker – 1 hour 18 minutes ago

Gas prices in the United States continue to rise, with the national average for regular now nearing $4 a gallon.

Americans are understandably frustrated by this. They're also frustrated with President Obama's "handling" of the situation.

A new Reuters poll finds that more than two-thirds of Americans--68%--"disapprove" of the way Obama is dealing with these high prices. Interestingly, a far lower number of Americans actually blame Obama for the high prices. Instead, they blame the oil companies and a combination of factors.

But it's not clear what Americans want Obama to do about high gas prices.

Releasing some oil from the Strategic Petroleum Reserve might have a limited, temporary effect, but it would also be raiding a store of oil that many Americans think should be reserved for a much more important purpose: Providing a source of emergency fuel if America's international oil supply lines ever get cut off. If Presidents make it a habit of raiding the SPR every time gas prices rise, the SPR won't be "strategic" for anything other than getting Presidents re-elected.

Because oil and gas prices are likely trending upward for an excellent fundamental reason, meanwhile--increasing demand from emerging economies like India and China--the only way to bring them down permanently is to diversify the country's sources of energy and reduce the country's consumption of it.

And President Obama is actually doing that.

U.S. oil production has increased over the last four years, from about 5 million barrels a day to close to 6 million barrels. Natural gas has become so plentiful that prices have crashed. And, in part as a result of high gas prices, Americans are driving less and using less fuel.

So the U.S. is actually making progress toward curing its foreign oil addiction. There's a long way to go, of course, and there's no quick and lasting fix to today's high prices, but we're making progress. And Americans frustrated with that progress should probably lay at least some blame at the feet of the Presidents and Congresses that have ignored the finite oil problem for the past 40 years.

Whether this progress will satisfy angry voters come November is an open question. Americans do tend to vote with their wallets, and gas prices are a highly visible and painful reminder that money doesn't buy much these days. So, as depressing as it is to those who view the Strategic Petroleum Reserve as a true emergency hoard, it's no surprise that the Administration is talking about possibly releasing oil from it.

http://finance.yahoo.com/blogs/daily...GVzdAM-;_ylv=3

comments

when obama was in the senate, he blamed bush for high gas prices.
now that he is in office, he claims the opposite.

..

The big three (Chrystler, G.M. and Ford) are retrofitting the assembly lines for the new line of Brobama pedal cars. Al Gore and Barry will be conducting progress from the air, in helecopters and corporate jets!

..

He also just stated that he will cuts the US dependence on foreign oil by 100% in 10 years. I'll say it now OOPS !!!

..

Humm... he took over the banks,,, automotive,,,, why not force the building of refineries to get more gas and drive down prices.. hummmm.. now won't that be a bit of a stretch...

..

Any person who reads would know why gas is up. Gas producers have shut the doors on a few refineries claiming lack of profitiablity. So they shut down a few refinies then say " We cant keep up with demand" and they raise the price.

..

he told you what he would do, and you still voted for him. you asked for it you got it.

Obama White House: Who’s responsible for high gas prices? The JOOOOZ!!
Posted by: Phineas on April 3, 2012 at 1:01 pm

Oh, honest to Pete! Once again, it’s “hug your enemies and slap your friends:” http://www.israelnationalnews.com/Ne...2#.T3sO4dm8pyI

The Obama administration is blaming Israel for the recent rise in global crude oil prices, according to a Sunday report in The World Tribune. The rise in fuel prices is deemed as harming the U.S. economy and has also hurt Obama in the polls as he seeks re-election in November.

The report cited a leading U.S. analyst, Robert Satloff, who returned from talks with Israeli officials.

Satloff, executive director of the Washington Institute for Near East Policy, said, according to The World Tribune, that the Israeli leadership saw Washington as attributing the higher gas prices to “Israel’s posturing” on Iran.

This is ridiculous. Blaming Israel for high gas prices is like blaming a man for finally standing up to the gang of thugs who’ve been threatening his neighborhood and family — “if only he wouldn’t provoke them, they’d leave us alone!” his spineless, querulous neighbors cry.

Iran’s government and military are dominated by the followers of a militant strain of Islam who see it as their duty to bring about the Islamic End Times in order to institute a global theocracy. Part and parcel of this is eternal hatred of and war against the Jews. They are developing nuclear weapons. Their leaders have openly speculated about how one bomb could destroy the Jewish state and have called for wiping Israel from the map. Recently, a high-ranking Iranian official produced an analysis justifying the annihilation of Israel under Islamic law.

And yet Israel is to blame for increased gas prices and harming the president’s reelection chances (1) because, for some strange reason, they make it clear they’re not going to let their people be slaughtered again and they take steps to do something about it.

How dare they??

Now, I’m not one of those who think the government has total control over fuel prices; external factors, such as the law of supply and demand the progressives so wish they could ignore, plays a huge role. China’s appetite for oil is enormous, and they’re buying a lot. And the threat of disruptions to global supply –created by Iran’s maniac actions– also drive up prices because of the increased risk in extracting and transporting oil from the Gulf.

BUT…

The administration’s policies still have a major effect: the open hostility toward exploration and extraction on federal lands; the slow-walking of permits already in the works; the refusal to issue new ones; and the refusal to obtain oil from friendly, stable, next-door neighbors. All these affect fuel prices because the price is as much about expectations of future supply as it is about current stocks. A more liberal, rational, and intelligent resource-development policy that would use safe modern technology would inevitably cause a dampening of prices because of the expectation of greater, more secure future supply.

BUT…

We can’t do that, because Obama is dependent on radical environmentalists for donations and campaign help, and his administration has invested too much (literally) in “alternative energy” to back away. So, the president needs a scapegoat. Now, who’s handy? Hmmm…

Enter the Jews Israelis. Tailor-made for President Short-Pants’ needs.

via Evan Pokroy

Footnote:
(1) Which is, of course, the most important consideration in the world. He’s even enlisting the Russian’s help. http://pubsecrets.wordpress.com/2012...ation-hot-mic/


**Posted by Phineas http://sistertoldjah.com/archives/20...es-the-jooooz/

Forward! People cringe at rising gas prices; Ask Obama ‘why is gas so much?’
Posted at 7:00 pm on February 6, 2013 by Twitchy Staff

Jane Yamamoto @JaneNews

Gas prices goin up. Have u seen prices higher than this ??? If so, where?? pic.twitter.com/mwsTpibB

Wow. And not in the good way. Gas prices are continuing to rise, and the pain at the pump is cutting deeper. Some media outlets are conspicuously silent.

John Nolte @NolteNC

More media stories today on Obama speechwriter heading to H'wood than record gas prices. #Incest #Elitism #ToolsOfState

4:07 PM - 05 Feb 13

Brady Cremeens @brady_cremeens

Bush was lambasted for gas that was 80% cheaper and UE 3% lower.
The media ran daily stories featuring homeless people.
Obama cruises along.

3:30 AM - 05 Feb 13

BIG GUNS @OBAMA_GAMES

Obama, what the h-e-ll-o is going on with the gas prices ?
Maybe you should have the media lie how we have a bullsht recovery. @cspanwj #TCOT

1:03 PM - 04 Feb 13

slone @slone

SURPRISE OBAMA VOTERS: Gas prices hit all-time record high for early Feb. http://www.cnbc.com/id/100431822 #tcot
10:21 PM - 05 Feb 13

Consumers Taking Hit From Rising Fuel Prices

Consumers have been spending more on gasoline than they have in nearly three decades.

CNBC @CNBC

✝Wretched Man I Am @WretchedManIam

#Gas prices have doubled since #Obama became president. Has your income doubled?

11:02 AM - 04 Feb 13

Troy D. Mayo Sr. @Ccmcarmaster

Killer Gas Prices pic.twitter.com/Ent6Y17v

3:15 PM - 06 Feb 13

Jill @jillseph

Between rising gas and toll prices, my long work commute now costs me $200 a week. So much for saving...

2:34 PM - 06 Feb 13

Morgan @veracity81

Oh hey, gas prices went up 40 cents in the last 2 weeks, if you haven't noticed.

3:32 PM - 06 Feb 13

petoskeynews @petoskeynews

Gas prices: Petoskey: $3.75
Charlevoix: $3.75
East Jordan: $3.73
Boyne City: $3.74
Traverse City: $3.68

3:23 PM - 06 Feb 13

Guess they are just bitterly clinging to their transportation! Some are also trying to bitterly cling to their jobs, to which they soon may be unable to drive.

rudolph j. girandola @rudolphjgir

200 gallons of heating oil $800.
Fill gas tank to get groceries for the week $50.
3/4 of ss check gone.
Obama's middle class help a myth?
yes

6:12 PM - 06 Feb 13

Spoon @fuprog

Gas is over $4,
my pay is down at least 20%,
I have to buy Obamacare.
What next @BarackObama ? #tcot

6:31 PM - 06 Feb 13

Obama is too worried about cameramen who “break his flow” http://twitchy.com/2013/02/05/dont-b...porters-swoon/ to care about if you can’t afford to let the gas pumps flow.

Consequences. Again.


http://twitchy.com/2013/02/06/forwar...s-gas-so-much/

Californians in shock as gas prices soar past $5/gallon to all-time record
http://twitchy.com/2012/10/06/califo...l-time-record/

Obama to America: Let’s lower gas prices…by redistributing oil subsidies to green scams!
http://twitchy.com/2012/03/29/obama-...t-raise-taxes/

Crushed unicorn dreams: ‘Why is my paycheck less’ turns to Obama vote regrets; ‘I should have voted Romney’
http://twitchy.com/2013/01/06/crushe...e-voted-romney

Hope and less change: Americans cringe at first paychecks of 2013; Stunned lib asks, ‘What happened?’
http://twitchy.com/2013/01/04/hope-a...what-happened/

comments

"Why is gas so much?" There hasn't been a new oil refinery built in the US for over 30 years?

"Why is gas so much?" Hundred of billions wasted on Solar Panels, Windmills and Green energy money laundering schemes?

"Why is gas so much?’" Slightly smaller sums in tax dollars wasted on Ethanol, which does nothing to improve gasoline.

...

It's high school economics, or it was back in the day when they at least pretended to educate us. Ignorance of market forces will not shield you from the effect of those forces.



http://twitchy.com/2013/02/06/forwar...s-gas-so-much/

Originally Posted by Jolie Rouge

Gas Prices Outside White House March, 2012



A picture is worth a thousand words and this one speaks volumes. On March 13, The Weekly Standard posted the following photo of an Exxon gas station's price marquee. The station is within walking distance of the White House and the listed price for its Supreme grade is frighteningly pushing $6.

Washington DC Gas Prices confirms the price for regular grade at $5.39 on March 13. The station is located at 2708 Virginia Ave NW and Rock Creek Pkwy.

http://news.yahoo.com/inconvenient-p...030327852.html

What is going on? Are we going to have to buy horses and buggies now. Geesh We have enough gas and oil in our country in the Dakotas to last hundreds of years. What gives, anyone have a clue?

GAS ON THE RISE FOR 32 DAYS STRAIGHT....
http://losangeles.cbslocal.com/2013/...-to-southland/

Obama Set to Raise Gas Prices By Another 6-9 Cents

http://www.cbsnews.com/video/watch/?id=50143821n

From Hot Air: (March 29, 2013) http://hotair.com/archives/2013/03/2...in-gas-prices/

In a year that has seen gas prices shooting upward already, a new EPA policy that makes fuel more expensive will not find a warm embrace with the public. Nevertheless, the Obama administration will announce today a new set of emission regulations that will in essence force all 50 states to comply with California’s standards for sulfur and other components of refined fuel. The White House claims this won’t add any cost to gasoline, but the oil industry strenuously disagrees: http://www.cbsnews.com/8301-250_162-...ipe-pollution/

The oil industry, Republicans and some Democrats had pressed the EPA to delay the rule, citing higher costs. An oil industry study says the rule could increase gasoline prices by 6 to 9 cents per gallon. …

But the head of American Fuel and Petrochemical Manufacturers, Charles Drevna, said in an interview Thursday that the refiners’ group was still unclear on the motives behind the agency’s regulation, since refining companies have already spent $10 billion to reduce sulfur by 90 percent. The additional cuts, while smaller, will cost just as much, Drevna said, and the energy needed for the additional refining could actually increase carbon pollution by 1 to 2 percent. “I haven’t seen an EPA rule on fuels that has come out since 1995 that hasn’t said it would cost only a penny or two more,” Drevna said.

The 6-9-cent range comes from an API study on the impact on refineries in the US, but the EPA says that study misses the point that almost all of these refineries already meet the standards — and that some which don’t in all cases produce gasoline for California which does:

A senior administration official said Thursday that only 16 of 111 refineries would need to invest in major equipment to meet the new standards, which could be final by the end of this year. Of the remaining refineries, 29 already are meeting the standards because they are selling cleaner fuel in California or other countries, and 66 would have to make modifications.

http://www.reagancoalition.com/artic...CipDphVWA1V.99