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The Cost of Gasoline

Wednesday, May 17, 2017

Sheila Jamison & Rich Jamison

The Memorial Day weekend is the unofficial start to summer. Driving, among other seasonal activities, increases. That translates into increased demand for gasoline. As you know, increased demand usually means increased price.

Oil has been on a roller coaster recently. Gas prices, which have also gone up and down, generally increase as we hit “driving season.” How much of the gasoline pump price actually comes from the price of oil?

Apparently, a lot less than most people expect. Though it changes from week-to-week, currently only about 50% of the price of gas comes from the price of oil.

So what are you paying for when you take your car out for a spin? (Tesla owners can stop reading here. The math below doesn't apply to you.)

A picture is worth a thousand words. What do we get by combining both? We get the answer to where your money goes, thanks to the Energy Information Administration.* On average, across the US and as of May 2 (the most recent data), here is the breakdown:

Graphic displaying the breakdown of the price of gas: 20% taxes, 14% distribution and marketing, 17% refining, and 50% crude oil

There are some regional differences. If you'd like to check your regional numbers, you can visit the EIA website here:

http://www.eia.gov/petroleum/gasdiesel/

Happy summer!

*The components for gasoline are calculated in cents per gallon and then converted into a percentage:

Crude Oil: the monthly average of the composite refiner acquisition cost, which is the average price of crude oil purchased by refiners.
Refining Costs & Profits: the difference between the monthly average of the spot price of gasoline or diesel fuel (used as a proxy for the value of gasoline or diesel fuel as it exits the refinery) and the average price of crude oil purchased by refiners (the crude oil component).
Distribution & Marketing Costs & Profits: the difference between the average retail price of gasoline or diesel fuel as computed from EIA's weekly survey and the sum of the other 3 components.
Taxes: a monthly national average of federal and state taxes applied to gasoline or diesel fuel.

It should be noted that the second and third components could vary widely, depending on the time when the components are being calculated. Since there is typically a lag between when the spot price changes to when the retail price changes, the refining costs & profits component and the distribution & marketing costs & profits component can vary from month to month. For example, as prices increase on the spot market, often the retail prices take time to adjust. Thus, at this point in the cycle, the refining costs & profits component (assuming no corresponding increase in crude oil prices) would be relatively large while the distribution & marketing costs & profits component would be relatively small. However, later on, as retail prices "catch-up" with the previous spot price increases, the distribution & marketing costs & profits component would increase while the refining costs & profits component would decrease.

Source: Petroleum & Other Liquids. Gasoline and Diesel Fuel Update. EIA.gov. May 2, 2017.