“What’s up with gas prices?” is a question we get asked a lot. Because crude oil is the primary component in gasoline production, the price rises and falls with the cost of crude—which is set by supply and demand on the global commodities market.
In 2008 and 2009, weak economic conditions in the U.S. and around the world led to less demand which drove prices down. Now, with the worldwide economic recovery underway, demand is on the rise again. Meanwhile, unrest in the Middle East and North Africa has put supply at risk. This combination of rising demand and the risk of reduced supply is pushing prices higher. In addition, the weakened value of the dollar means U.S. consumers are more affected by rising crude prices than the citizens of other countries.
In addition to crude oil, which comprises approximately 68 percent of the price you pay at the pump, gasoline prices are impacted by the costs of refining, distribution, marketing and government taxes.
The biggest single component of retail gasoline prices is the cost of the raw material used to produce the gasoline – crude oil. That price has been between $80 and $120 a barrel, depending on the type of crude oil purchased. With crude oil at these prices a standard 42 gallon barrel translates to $1.90 to $2.85 a gallon at the pump. Excise taxes add another 49 cents a gallon on average nationwide. So the price for gasoline is already at $2.40 or more per gallon even before adding the cost of refining, transporting, and selling the gasoline at retail outlets. Crude oil costs account for about 68 percent of what people are paying at the pump. Excise taxes average 13 percent. That leaves around 19 percent for the refiners, distributors, and retailers.
Refining the crude oil, storage, delivery and retailing further add to the cost of producing gasoline. To learn more about the factors affect gas prices, read our gas prices primer.