Gas Cost Vs. Oil Price
Oil spills, sectarian violence, pipeline explosions and many other factors send the media into a frenzy of speculation about what these disasters will do to gas prices. Guests are interviewed to make predictions. Panelist after panelist adds his pennies to the pot. Consumers only want to know the true relationship between oil price and gas price.
Other People Are Reading
-
Supply and Demand
-
Both crude oil price and gasoline cost are impacted by supply and demand.
"If demand rises quickly or supply declines unexpectedly due to refinery production problems or lagging imports, gasoline inventories (stocks) may decline rapidly," the U.S. Energy Information Administration says on its website. When demand decreases, supply increases and prices drop.
During the 1973 oil embargo, for instance, oil-rich countries hiked up the prices of oil or refused to sell to Western countries. Locally, supply dwindled and prices rose. Western countries found other sources or encouraged motorists to reduce the use of their cars. Demand dwindled and prices dropped.
Crude Oil
-
Oil prices vary depending on the region of the world from which the oil comes. The price refineries pay for crude oil is only one factor in the price of gas. Wheels Magazine noted in May 2010 that although crude oil price had recently dropped by 19 percent the price of gasoline in Toronto, Canada, had declined by only 5 percent.
Based on the research report by the U.S. Energy Administration, crude oil price accounts for only 45 percent to 55 percent of the cost of gas, which includes the cost to refine the oil.
-
Seasons and Regions
-
Seasonal changes can increase the demand for gas or decrease it. During summer, when weather is more desirable, more people drive, so demand is up and so are prices. In the winter when some parts of the country experience snowstorms or other weather that makes it harder to drive, demand is down, and so are prices.
Taxes
-
The state of California has notoriously enforced more tax laws onto refiners than most other states. States who impose taxes on oil companies may cause a 21 percent price increase. At the city or county level, taxes can account for as much as 19 percent of the gas price. The federal government tacks on another 20 percent with excise taxes. Because of the many municipalities involved the price of gasoline can vary from county to county or city to city within the same state.
Getting Oil and Gas to Customers
-
Distribution, marketing and retail make up 9 percent of gas costs. Oil refineries market to consumers as well as organizations, such as the government and airlines. The buyers pay for the expenses the oil companies incur to market. Distribution is the method used to get oil from the well to the refinery and from the refinery to the retail stores. Distribution is handled through pipelines, trucks and boats. The retail store, whether owned by the refinery or an independent gas station, tacks on additional costs to increase its profit margins.
-
References
- "Fundamentals of Oil & Gas Accounting"; Charlotte J. Wright, Rebecca A. Gallun; 2008
- U.S. Energy Information Administration: A Primer on Gasoline Prices
- University of Pittsburg Department of Statistics: Crude Oil and Gasoline Prices: An Assymetrical Relationship?
- Wheels: "Why Gasoline Prices Haven’t Fallen"; 2010
Resources
- Photo Credit gas image by Mat Hayward from Fotolia.com
