Posts Tagged ‘gas’
It’s Good to Know: Calculating the Cost of a Gallon of Gas
As many of you know, the price at the pump is determined by a few different factors. A majority of news shows simply state that, “it is all supply and demand.” While that all sounds grand, have you ever wondered to yourself how they come up with the per gallon price of gas? Well, wonder no more.
Crude oil is the key contributing factor towards the cost of a gallon of gasoline. In fact, crude oil costs makes up 70% of the cost per gallon. To be more exact, refineries get 42 gallons of gasoline out of a barrel of crude oil. So, if the market has the per barrel price of crude oil at $109, the cost of the gasoline in that barrel is approximately $2.60 per gallon. Remember though that crude oil costs account for only 70% of the cost of gas at your local gas station.
Refining and distribution, as well as your local gas station’s profit makes up approximately 16% of the per gallon price of gas. Refining that crude oil into gas, delivering it, the gas company’s profit, and the gas station’s cost of doing business are wrapped up in this 16%. Based upon a per gallon price of $3.65; your looking at $0.58 of that attributed to these costs.
Finally, you can’t escape taxes. Each state varies in taxes with the lowest being Alaska at $0.23 a gallon, and the highest being California at $0.63 a gallon. Most states fall in the middle with taxes averaging $0.40.
Using the scenario above, determining the price at the pumps isn’t as complicated as it seems.
