Gas: Where Does the Money Go?
With extremely high gas prices straining consumers’ pockets in recent months, it is only natural for people to wonder where all the money they pay at the pump goes. Contrary to popular belief, the price of gas is not solely reliant on the price of crude oil. There are many parties involved in setting the price of the gas you purchase at the pump, and below is a quick run-through on who they are and what portion of the entire price they require.
– Crude oil: Crude oil suppliers require the largest share of the pie at about 45%. This share is determined by the oil-exporting nations and the Organization of the Petroleum Exporting Countries (OPEC) in particular. The price of one barrel of crude oil depends on how much crude oil these oil-exporting countries produce. Sometimes gas prices rise despite the fact that there is enough crude oil to go around, and this is because of a variety of other factors, one of which is the quality of oil. Oil can be heavy or light, and sweet or sour. These words only describe the quality, not the taste, of oil. For example, light, sweet crude oil is cheaper and easier to refine, but quantities of this kind of oil have been running lower recently. However, there is still a lot of heavy, sour oil, which means that refineries must spend more money refining it.
– Taxes: Federal and local taxes take about 31% of the price you pay at the pump. Federal excise taxes account for about 18 cents per gallon, while state excise taxes require about 20 cents per gallon. There might also be some additional state sales taxes, along with local and city taxes.
– Refining costs: Refining crude oil makes up approximately 13% of the price you pay at the gas pump.
– Distribution and marketing: The costs of transporting and marketing gas make up about 13% of the price of gas. Crude oil must be transported from oil-producing countries to refineries, then the gasoline must be transported to distribution points, and then lastly to the gas stations that fill your tank. All of the costs of this shipping and transportation are transferred to you, the end consumer. Along with all this comes the marketing that is involved in increasing a brand’s awareness and appeal, and these costs are also passed on to the consumer.
– Gas station markups: There is no set percentage for this number. Gas stations are at their own discretion as to how much to add on to the price in order to actually make a profit on the gas that they sell. Some stations (usually the larger ones) will only tack on a couple cents, while others will add a dime or even more. Some states have laws that prevent stations from adding on less than a specified percentage over the price that the wholesaler sets. These markups are also dependent on the area where the station is located. Demographic information such as median income and population affect the decisions that stations make concerning the exact price they set for the gasoline that they sell from their pumps.