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.
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