A PRIMER ON GASOLINE PRICES

By: Pierre Schexneider M. Ed.

Gasoline, one of the main products refined from crude oil,
accounts for just about 17 percent of the energy consumed in the
United States. The primary use for gasoline is in automobiles
and light trucks. Gasoline also fuels boats, recreational
vehicles, farm equipment and various type of other equipment.
While gasoline is produced year-round, extra volumes are made in
time for the summer driving season. Gasoline is delivered from
oil refineries mainly through pipelines to a massive
distribution chain serving 167,000 retail gasoline stations
throughout the United States. There are three main grades of
gasoline: regular, mid-grade, and premium. Each grade has a
different octane level. Price levels vary by grade, but the
price differential between grades is generally constant. What
are the components of the retail price of gasoline? The cost to
produce and deliver gasoline to consumers includes the cost of
crude oil to refiners, refinery processing costs, marketing and
distribution costs, and finally the retail station costs and
taxes. The prices paid by consumers at the pump reflect these
costs, as well as the profits (and some- times losses) of
refiners, marketers, distributors, and retail station owners.

In 2003, the price of crude oil averaged $28.50 per barrel, and
crude oil accounted for about 44% of the cost of a gallon of
regular grade gasoline. In comparison, the average price for
crude oil in 2002 was $24.09 per barrel, and it composed 43% of
the cost of a gallon of regular gasoline. The share of the
retail price of regular grade gasoline that crude oil costs
represent varies somewhat over time and among regions. What Do
We Pay for in a Gallon of Regular Grade? Federal, State, and
local taxes are a large component of the retail price of
gasoline. Taxes (not including county and local taxes) account
for approximately 27 percent of the cost of a gallon of
gasoline. Within this national average, Federal excise taxes are
18.4 cents per gallon and State excise taxes average about 21
cents per gallon. 2 Also, eleven States levy additional State
sales and other taxes, some of which are applied to the Federal
and State excise taxes. Additional local county and city taxes
can have a significant impact on the price of gasoline. Refining
costs and profits comprise about 15% of the retail price of
gasoline. This component varies from region to region due to the
different formulations required in different parts of the
country. Distribution, marketing and retail dealer costs and
profits combined make up 14% of the cost of a gallon of
gasoline. From the refinery, most gasoline is shipped first by
pipeline to terminals near consuming areas, and then loaded into
trucks for delivery to individual stations. Some retail outlets
are owned and operated by refiners, while others are independent
businesses that purchase gasoline for resale to the public. The
price on the pump reflects both the retailer's purchase cost for
the product and the other costs of operating the service
station. It also reflects local market conditions and factors,
such as the desirability of the location and the marketing
strategy of the owner.

About the author:
Pierre Schexneider is president of The Schexneider Group, LLC an
E-commerce consulting business. As a consultant his research
abilities have afforded him many opportunities to expand his
knowledge base. For gas saving tips please visit:
http://www.how2saveongas.com/gastips