What causes the fluctuations in gasoline costs?
What factors determine the cost of a gallon of gasoline?
We, as consumers understand the basic law of supply and demand. If we have a lot of a product, we can get it for less, since supply outweighs demand. If we have lesser amounts of product, we will have to pay more for it, since demand outweighs supply.
So now we can begin to see that the supply of crude oil can fluctuate from month to month depending on various causes, and gasoline prices are raised or lowered accordingly.
Did you know after refining we only get 19.5 gallons of gasoline from every 42 gallon barrel of crude oil. Do you know what figures in to the cost of the gasoline we pay for at the pump?
There are four major factors involved in gasoline pricing in the world today. Added together, these four factors total up to what you pay per gallon for gasoline.
1. The cost of the crude oil used to get the gasoline is the highest portion of the cost per gallon. If crude oil supplies increase, gasoline prices are lowered.
If the supplies of crude oil decrease, gasoline prices are automatically raised. The price of crude oil, and most of its production, is determined by the countries who export the oil, many of whom have joined together to form The Organization of the Petroleum Exporting Countries (OPEC). Crude oil can account for 53% of gas per gallon costs.
2. Next is the cost of refining the raw crude oil, which is no good to us in its natural form. The raw crude must be processed or broken up into different products that are useful. The refining of crude oil can account for 19% of gas per gallon costs.
3. Taxes. Local, state and federal taxes imposed on gasoline can also make up a large part of the price of gas you pay at the pumps. All taxes combined can account for 19% of gas per gallon costs.
4. This brings us to the last gasoline price determining factor. The distribution and marketing of the gas, or in other words the combined cost of providing 3 things. The cost of gasoline delivery, the overhead of running the gas station and some profit for the gas station. This can account for 9% of gas per gallon costs.
Since all these factors combined help calculate the cost of gasoline at the pump, any variation at any one of these levels can cause gasoline prices to fall or to rise.
Some of these factors can be controlled by man, others cannot. An example of the uncontrollable factors was seen in 2005 with the damage and destruction left in the aftermath of Hurricane Katrina.
Katrina's force knocked out a large portion of our offshore oil refineries and pipeline systems, causing a gasoline shortage, which in turn lessened supply. The outcome was the raising of gasoline prices, due to shortened supply and increasing demand along with increases in the cost of refinery repair or in some cases replacement.
Just this month crude oil hit an all time high price of $100.00 a gallon. It has settled down to a mere $90.57. It is anybody's guess at this point where it will end up in the next couple of months when we come into the spring/summer high demand season.