With the ever-changing – and sometimes outrageous – price of gasoline, drivers are always looking for ways to increase fuel efficiency while controlling costs at the pump. But how many of us really know how gas prices are determined?
Before looking at the factors that determine gas prices, let’s review some statistics on fuel consumption. According to the Department of Energy (DOE), the U.S. consumed 137.80 billion gallons (or 3.28 billion barrels) of gasoline in 2008. That’s actually about 3% less than the record high of about 142.35 billion gallons (or 3.39 billion barrels) consumed in 2007. As a comparison, consumption in 1998 was about 126.52 billion gallons (or 3.01 billion barrels).
Let’s turn our attention now to factors that help determine retail gas prices. Figures listed below are from the Department of Energy (DOE).
- Crude Oil Prices. This price varies over time and among regions of the country. In March 2010, refiners paid an average of about $80 per barrel of crude oil, which accounted for about 69% of the national average retail price of a gallon of regular grade gasoline.
- Taxes. Federal, State, and local government taxes (not including county and local taxes) accounted for about 14% of the national average retail price of regular gasoline in March 2010. Federal excise taxes were 18.4 cents per gallon and State excise taxes averaged 22.01 cents per gallon.
- Distribution and Marketing. Distribution, marketing, and retail dealer costs and profits made up the next largest share of the retail price of gasoline in March 2010. These expenses accounted for roughly 8% of the retail price of regular gasoline.
- Refining. Refining costs and profits were the smallest part of the retail price of gasoline in March 2010, accounting for 9% of the retail price of regular gasoline.
Demand is another indicator of higher gasoline prices. The demand for gasoline is usually higher in the summer, since it is a peak vacation time. This higher demand generally translates to higher gas prices.
