Breaking Dollars Down to Pennies

1 decade 10 months 6 days ago Friday, November 16 2007 Nov 16, 2007 Friday, November 16, 2007 1:53:16 AM CST November 16, 2007 in News

To the average person, it probably seems as though there's little rhyme or reason to how gas prices are determined. 

Americans have a thirst for gasoline. They drive more than 2.5 trillion miles per year. In fact, today, we drive almost twice as much as we did in 1980.

So as much as we complain about the ever rising price of a gallon of gas, in the United States, about 178 million gallons of gasoline are still consumed every day. So where's all that money going?

"90-95 percent of the prices you pay at the pump is determined before that gallon shows up at gas stations and convenience stores," said Ron Leone, Executive Director of Missouri Petroleum Marketers Association.

Gas is just like any other consumer product. There is a supply chain and several groups who are responsible for setting the price of the product.

The biggest part of the cost of gas goes to the crude-oil suppliers, at about 64 percent. The price of crude oil is determined by the world's oil-exporting nations, particularly OPEC.

The refining of crude oil makes up about 13 percent of the price. Oil can be classified as heavy or light, and as sweet or sour. Light, sweet crude is easier and cheaper to refine, but supplies have been running low as of late. There's plenty of heavy, sour crude available in the world, but refineries, particularly those in the U.S., have to undergo costly retooling to handle it.

Crude oil is transported to refineries, and gasoline is shipped from the refineries to distribution points and then to gas stations. The price of transportation is passed along to the consumer. Marketing the brand of the oil company is also added into the cost of the gasoline you buy. Together, these two factors account for about nine percent of the price.

Including federal, state and local, taxes account for about 14 percent. Service stations add on a few cents per gallon, but it's not even enough to account for one percent of the price. There's no set standard for how much gas stations add on to the price. Some may add just a couple of cents, while others may add as much as a dime or more.

"Often time the consumer mistakenly believes because one of my members is Exxon Mobile or BP or Shell, that that's a Shell company there and not a small business," explained Leonne. "That is a franchise of that company and that small business is faced with these days and is barely making a living these days in regards to the costs at the pump, they're not making a heck of a lot of money."

And we here in the Midwest, particularly mid-Missouri are typically 10-20 cents lower than the national average because we have low state fuel taxes and lots of competition for your gasoline business.

Another factor that is slowly driving up gas prices is credit card use, and it's a double edged sword.

The higher prices go, the more likely you are to charge your gas. And then the gas stations have to pay more credit card fees, and in turn charge higher prices.

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