The price of gasoline is determined by certain factors. In this article we will take a look at these factors to understand how gas prices work. Read on…
Gasoline is one of the important bloodlines of modern America. According to reports Americans consume more than a hundred billion gallons of gasoline every year. We often hear people asking the reason behind such high prices of gas. Well, we have to blame it on the tremendous demand for gasoline in the United States. According to the Department of Energy, the everyday consumption of oil products in America is around 20 million barrels. Depending on whether it is winter or not, the consumption of oil products also changes which in turn affects the gas prices. When you put $40 worth of gas in your tank, the money is distributed among several organizations. There is a proper supply chain in place which brings gasoline from the oil fields to your local filling station. If any one constituent of this supply chain is impacted, then it has a bearing on the gas price and causes it to go up. Let us take a look at the various factors that affect the price of gasoline.
Crude oil
The most important factor in determining the gas prices is the quantity of crude oil produced by the Organization of the Petroleum Exporting Nations (OPEC). It is a group of 13 countries which together produce around 40% of the total crude oil in the world. OPEC controls oil prices to a great extent but there are some other factors which determine whether the prices go up or down. The OPEC members determine the prices of crude oil by checking the production and exports of each country. You might be surprised to know that OPEC restrains from producing too much of crude oil so that the oil market is stable and each members country is able to make substantial profits as these countries are totally dependent upon oil for their earnings. Crude oil is the primarily material from which gasoline is extracted. The crude oil is transported to factories to produce gasoline.
Refining costs
A refinery breaks down the crude oil into various components. The money that you pay for your gasoline also includes the refining costs and the profits for the refining costs. Oil refineries require high maintenance and are impacted by regulations, so these also determine whether the prices go up or down.
Taxes
One of the major factors that impact the gas prices are the federal, state and local taxes. Estimates suggest that around 14% of what we pay for gas goes into the government’s coffers. Governments do change tax rates on oil and natural gases, so this causes the oil prices to go up and down.
Distribution and marketing costs
When the gas becomes a commodity to sell to consumers, oil companies include their costs of distribution and marketing as well. These two factors account for 8% of the cost of gasoline.
Gas station costs
It is difficult to leave the service stations out of the supply chain. The amount gas stations add to the total gas prices may differ from place to place, some states have adequate laws in place so that small gas stations are able to survive.
| Factor | Amount |
| Crude Oil | 68% |
| Refining | 10% |
| Distribution and marketing | 8% |
| Taxes | 14% |
| Station costs | N/A |
This was the distribution of the cost of gasoline prices. We are all aware of the important role gasoline plays in our lives and that probably explains the flutter created by increase in its prices. We hope that this brief information would have helped you in understanding how gas prices work, although it is a vast topic and requires extensive research.