What Determines Gas Prices? - Deepstash
What Determines Gas Prices?

What Determines Gas Prices?

Curated from: investopedia.com

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Oil Prices: The Crude Reality

Oil Prices: The Crude Reality

Crude oil prices play a primary role in setting gasoline prices. Crude oil is a raw commodity that is used to manufacture gasoline.

The price of crude oil accounts for 56% of the price of gasoline in the decade through 2020, on average.

Not all grades of crude oil are useful for making gasoline. Lighter crude is less dense and will make more gasoline per barrel than heavy crude. Sweet crude has lower sulfur content and more preferable to sour crude with more sulfur.

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Refining Has a Price

Refiners need to be paid to distil crude oil into gasoline and add the required additives. In the decade through 2020, refining costs and profits accounted for 14% of the retail price of gasoline, on average. Seasonal and regional blending requirements and additives such as ethanol add to the cost.

The price of wholesale gasoline also reflects supply and demand. For example, gasoline prices typically rise in the summer in the US due to higher demand.

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Distribution and Marketing

Distribution and Marketing

Once crude is refined into gasoline, the fuel has to be shipped to a storage tank, from where it will eventually be distributed to local gas stations. The gas stations require staff and maintenance.

Distribution and marketing costs accounted for 14% of the U.S. retail price of gasoline in the decade through 2020, on average.

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Taxes

State and local taxes accounted for 16% of the retail gasoline price in the decade through 2020.

Federal taxes and fees were 18.4 cents per gallon for gasoline and 24.40 cents per gallon for diesel as of July 1, 2021.

State taxes averaged 30.63 cents per gallon for gasoline and 32.29 cents per gallon for diesel as of the same date.

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Consumer Demand

Consumer Demand

Consumer demand also plays an important role. U.S. gasoline consumption fell in 2020 during Covid-19 restrictions but has mostly rebounded.

As of October 2021, 10 gallons of gasoline cost the equivalent of about 3.1% of weekly per capita disposable income, down from 4.8% in 2011.

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