What Consumers Pay For At the Pump 101
The price of gasoline is impacted by a variety of factors. Throughout the U.S., particular states and regions face different challenges, such as infrastructure constraints and government policies. However, the largest factor in the price consumers pay for gasoline is tied to the price of crude oil, the primary material used to make gasoline. Along with the price of crude oil, taxes, the cost of refining, and gasoline distribution and marketing costs also play significant roles in the price of gasoline.
What Consumers Currently Pay in a Gallon of Gasoline:
What Consumers Paid in 2012 in a Gallon of Gasoline:
The cost of crude oil has the largest effect over the price consumers pay at the pump. In 2012, the cost of crude oil accounted for 67 percent of the retail price of gasoline. Crude oil’s price is set on the global market before the refiner even touches the raw material, and the price can be affected by many factors such as OPEC production levels, an increasing global demand for crude oil, economic outlooks and geopolitical instability. Dramatic increases in U.S. crude oil
production on state and private lands is also shifting the global crude oil
Refiners are the first purchasers of crude oil, the raw material from which gasoline is manufactured. Manufacturing, or refining, the crude oil into gasoline represented about 12 percent of what consumers paid at the pump. Within that 12 percent, refiners must pay for wages, equipment, financing and other expenses and at the end hope to turn a profit.
Distribution and Marketing
The distribution and marketing of a gallon of gasoline accounted for 9 percent of the price of a gallon of gasoline in 2012. Once manufactured, gasoline leaves the refinery and is shipped to local terminals for distribution to service stations. Retailers then set the price at the pump based on local competition, hoping to recover the price they paid for the fuel being delivered to their stations and the costs of operating their own retail outlets. Although many retail stations carry the flag of oil companies, 95 percent of filling stations are franchises that are owned and operated by independent businessmen and women.
State and federal taxes on average for 2012 accounted for 11 percent of the cost of a gallon of gasoline. While many areas also have local taxes, this number does not include these taxes. Terminals collect federal and state taxes, which can vary greatly from state to state. Total gas taxes per gallon range by state from lows of 30 cents per gallon to highs of more than 60 cents per gallon in states like New York and California.
Where Does Your Gasoline Come From?
One of the many factors impacting gasoline prices cost of crude oil to refiners and cost of storing and moving gasoline to local retail stations. The fuels that power our nation’s cars and trucks are refined petroleum products that are made at many of the nation’s refineries. Refiners are the first purchasers of crude oil, and refineries manufacture the crude oil into products such as gasoline, diesel, jet fuel, home heating oil and petrochemicals. Following production, these petroleum products are distributed to consumers through pipelines, tankers, barges, or trucks for delivery to gas stations.
EIA: Flow of Crude Oil and Gasoline to Your Local Gas Station
Domestic and Imported Crude Oil Production
Crude oil is produced in 31 states and in U.S. coastal waters. Despite oil production’s general decline between 1985 and 2008, it has been exponentially growing since 2008 as a result of unconventional sources such as shale and tight oil. In 2012, U.S. oil production grew at its fastest pace in the U.S. since 1965, with an increase in input of about 1 million barrels a day. As a result of this increase in unconventional sources, the U.S. net oil imports has decreased by 930,000 barrels a day and imports are now 36 percent below their peak in 2005.
Despite the increase in domestic oil production, the U.S. still relies on net imports for about 40% of the petroleum that the U.S. consumed in 2012. The U.S. received over half of its petroleum imports from the Western Hemisphere in 2012. The top sources of crude imports to the U.S. were Canada, Saudi Arabia, Mexico, Venezuela, and Russia.
|Following the extraction of oil, it is purchased by a refinery and sent by pipeline, ship, or barge to be processed into usable products. The refining process separates the crude into useable petroleum products. A barrel of oil, which holds 42 gallons of oil, produces about 19 gallons of finished motor gasoline, and about 10 gallons of diesel, as well as other petroleum products.||http://www.eia.gov/energyexplained/index.cfm?page=oil_refining#tab1|
Refineries process different types of crudes and some are equipped to handle some types of crudes that other refiners cannot. The physical characteristics of crude oils can differ, as many types of crude are classified by density and sulfur content. Less dense, or lighter crudes, have a higher share of light hydrocarbons from which higher-value products such as gasoline and diesel can be recovered through the refining process. The denser, or heavier crude oils, also produce lower value products, such as petroleum coke, through the refining process.
The source of the crude oil used at that refinery may vary on a day-to-day basis. Most refiners use a mix of crude oils from various domestic and foreign sources. The mix of crude oils can change based on the relative cost and availability of crude oil from different sources.
Refinery and Terminal Storage
After the refining process, the majority of gasoline made is shipped by pipeline to terminals, which are generally located near consuming areas. However, both the incoming crude oil and the outgoing final products also need to be stored at the refinery. These liquids are stored in large tanks on a tank farm near the refinery. Pipelines then carry the final products from the tank farm at the refinery to the bulk storage terminals all across the country. From the bulk storage terminal, the gasoline is then loaded into trucks for delivery to individual retail stations
Lastly, retail stations receive gasoline from the terminal for distribution to their customers. Although, many retail stations carry the flag of oil companies that does not necessarily mean that the gasoline was actually produced by that particular company’s refinery, or that the retail station is owned by that company. There are about 162,000 retail stations across the U.S. Of those retail stations, about one-third is unbranded and sells gasoline of any brand. Furthermore, even though branded stations carry the flag of one particular company that does not guarantee they sell gasoline produced by that company’s refineries. The mixing of brands occurs because a large majority of retail stations purchase gasoline from bulk storage terminals, where gasoline from different refineries are often mixed and combined during shipment through the pipeline.