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By Samuel R. Avro on Mar 21, 2012 with 38 responses

What Makes Up the Cost of a Gallon of Gasoline?

Gas Price Breakdown: It’s All About the Cost of Crude Oil

“What am I paying for in a gallon of gas?” is a question on people’s minds and often posed by regular visitors to Consumer Energy Report. With the assistance of the Energy Information Administration, who provided the data (see the methodology they used for calculating the component percentages at the end of this column), I was able to break it down into a series of charts from 2000-2012.

For a more detailed look into the recent spike in gas prices, see: Charting the Dramatic Gas Price Rise of the Last Decade

Figure 1. The composite share of various components that make up the price of a gallon of gas, 2000-2012.

The stat that jumps out the most in Figure 1 is the major shift in the share of crude oil toward the cost of a gallon of gas since 2000. In February 2000, when gas was selling for $1.38/gal, crude oil accounted for 45%; by the end of 2011, by which time gas had more than doubled to $3.27/gal, that share had gone up to an astounding 80%.

Figure 2. Crude oil share of gas prices, 2000-2012.

Figure 2 takes a closer look at the at the crude oil component’s incessant rise from 2000-2012.

Taxes Lose Influence

Figure 3. Taxes share of gas prices, 2000-2012.

Figure 3 suggests that lowering gas taxes — as we often hear some state and federal officials proposing to the delight of their constituents — will not do as much to lower gas prices as people think. The taxes share of gas prices have gone down from 30% in 2000 to just 12% by the end of 2011.

Crude Oil Steals the Pie

Figure 4. Gas price shares in February 2000.

The pie charts in Figures 4 and 5 show the significant changes that occurred between February 2000 and January 2012. The most noticeable change was the jump in the share of crude oil, followed by the drops in taxes and refining.

Figure 5. Gas price shares in January 2012.

Methodology For Gasoline Fuel Pump Components

The components for the gasoline fuel pumps are calculated in the following manner 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 (used as a proxy for the value of gasoline 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 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 can 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.

  1. By gatekeepertwo on March 22, 2012 at 2:30 am

    what about the speculators’ contribution to the cost of gas?

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    • By Samuel R. Avro on March 22, 2012 at 9:21 am

      The issue of speculators is irrelevant to this particular discussion: The components of the cost of a gallon of gas. These components are crude oil, taxes, marketing, and refining. Whether or not speculation increases the price of one of the components (crude oil) is a separate issue and worthy of discussion in and of itself. Indeed, it’s on my list of topics that will be covered here in the near future, so stay tuned!

       

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      • By Chris Sievert on May 31, 2013 at 8:20 pm

        It doesn’t matter how much oil the US produces because the oil drillers are going to sell to the highest bidders…. right now China and India… That drives prices here higher… we don’t import less oil than in 2009 even though we produce 2x what we did then… unless Congress says we have to keep our oil here it the oil companies will continue to sell our crude overseas….

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      • By Chris Sievert on May 31, 2013 at 9:58 pm

        The US produces 2x the Crude we did in the early 2000′s has gas prices dropped by 1/2? No why not? Tax on a gallon of US gasoline is the same weather it is sold at $1.00 a gallon or $5.00 a gallon…. Gas tax is by the gallon not by the price per gallon… So every oil company benefits by keeping the price higher through lower taxes per gallon….

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    • By mike on March 31, 2012 at 1:50 pm

      Speculators drive the price up  and conversly drive it down to some extent.

      To me the more interesting topic is that many things like gas have been taxed already.The largest portion of the price of 1 gallon of gas is the crude oil appox 60-70%. In  cnn-money article I read  exxon  made 40 billion in profit in 2007 a 60% increase from 2004.But they paid 100 billion in taxes and fees. That  should speak for it self but  what happens w/ out much thinking is this. Companies don’t pay taxes we do. The company will raise the price so they can make a profit. If they can’t make a profit they will go out of business and stop serving there customers. We the consumer pay the 100 billion and the 40 billion and the tax on the gallon of gas of approx .40 cents depending on state.  

      Sorry to say It does not end here or even start here.

      Every business that uses oil or gas in any way has to increase  there prices on their goods and services. 

      Oil is priced in dollars as we de-value the $ in various ways it also increases the price. We politely call this inflation. 

      The people hurt the most are the one who have the least. They pay the increased price and its a higher % of what they have.

      Lastly lets try to to break out some of the tax a working person has to pay on a gallon of gas from earning it to purchase.  we work get our check minus  a bunch of tax fed,st etc. our employer paid tax also ,then  comes inflation tax, then. oil companies pay tax and royalties, then we pay for fed and st again on every gallon. And after paying all this tax all my life on all these things I have to pay death tax .

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      • By Sean on September 22, 2012 at 2:47 pm

        Wow, slow down drinking that Fox News kool-ade or you’ll drown yourself.

        This bizarre notion that any tax levied upon a company is passed on to the consumer is utter and complete nonsense.  It implies that companies are operating on such a thin margin that their markup on the goods they sell has to be pegged to the amount of tax they pay.  Not only is that assumption completely ridiculous on its face, it also fosters the child-like notion that taxes are levied on a company’s revenue, not on their profits.  I mean, how these idiots get away with spewing this nonsense as some sort of justification for not taxing companies is beyond me.  They’ve been called on it so many times, but hey, repeat a lie enough times and idiots will believe it.

        And I like that last little Frank Luntz inspired comment about paying a death tax, oh what a final insult to your life of paying unnecessary taxes, haha.  Only you’re dead, idiot, you are not paying the estate tax.  The ESTATE TAX only applies to bazillionaires who leave their kids a fortune upon which they will NEVER pay income tax.  They simply invest it and make money while only paying 15% their whole rich pampered lives.  The ESTATE tax does not kick in until you are leaving your kids over 5 million dollars.  Wow, what a disincentive to be a success in life, that when you leave your kids several million dollars leftover that you didn’t need to give them a lifetime free of doing any work whatsoever, THEY will have to pay a tax on it, not your dead body.

         

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        • By Dave on October 5, 2012 at 3:14 pm

          What part of what Mike said do you not agree with there Sean??  What Mike said is actual fact.  I as a business person, in order to make a profit and keep my business worth being in, pass on the taxes levied on me onto the consumer.  Every business out there that I know of does the same thing.  It’s just smart business sense.  I know of no company that could survive if it did not pass on the tax increases to the consumer and turn a profit.

          When you pay sales tax, the store does not keep that money, it is a tax levied on the store that is passed onto the consumer.  Other business taxes are no different.  The only difference is, those other taxes are hidden within the price of the merchandise to the consumer.  Which is inflation.  The more businesses get taxed, the higher the product costs to the consumer. 

          After reading what Mike wrote, I have to say that everything he said is completely accurate, even the part with the people hurt the most are the people with the least amount of money as they are paying a higher percentage of their income for a gallon of gas.

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          • By Chris Sievert on May 31, 2013 at 8:15 pm

            @Dave I’ve worked for a fuel selling convenience store we made between 3%-4% on gas sales our profit was selling a $0.09 soda to you for $1.49 from our fountain machine! And snacks at 700% mark up lol Refiners major cost is the cost of the crude not taxes. Taxes are miniscule in the USA for oil refiners. That’s why Oil Companies are 4 of the top 10 revenue producers in the USA!

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          • By Chris Sievert on May 31, 2013 at 9:52 pm

            @Dave… Gas is a flat tax by gallon if they sell a gallon at $1.00 the government takes the same amount even if they sell the gallon at $4.00 but on the company books that means a 75% reduction in tax if they sell at $4.00…..

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      • By Chris Sievert on May 31, 2013 at 9:49 pm

        Speculators reduce the cost by ZERO… Increase it well you see US Production has doubled in the past 7 years prices have dropped by what? Why? Speculation has continually driven prices up… And before you say with speculation someone wins and someone loses yes the speculators win and the consumer LOSES!

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  2. By Gatorman on March 22, 2012 at 8:25 am

    This is misleading. This article says the share of the cost from taxes has gone down from 30% to 12%, but taxes haven’t changed, only the total price. 30% of $1.38 is 41 cents. Anyone want to guess what percentage of the price 41 cents is if the price is $3.38? Yeah, it’s 12%.

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    • By Mark on March 22, 2012 at 8:35 am

      What the writer is saying it that the price of crude has gone up so much it has minimized the percentage that taxes make. If taxes went to zero, it can only change the price by 12% right now. This infers that taxes do not affect the overall price like they used to. When taxes are 41 cents ou tof $1.38, it is a huge percentage, so gas could have been cut by a third if taxes went to zero. For taxes to stay 30%, they would need to increase along with the crude. Everyone knows they haven’t increased with the crude, so I don’t see how it is misleading. It is more of the case that people without math skills do not understand the math behind it.

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      • By Samuel R. Avro on March 22, 2012 at 9:28 am

        Exactly, Mark. I thought I made it clear that “Taxes Are Losing Influence” because “It’s All About the Cost of Crude Oil” now. My point is simply that calls for lower gas taxes won’t bring us back to the good old days when we were paying $1-$1.50/gal, since taxes only account for a 12% share of $3.50+ gas.

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        • By Chris Sievert on May 31, 2013 at 8:46 pm

          True most people are under the impression that gas tax is by price when it is actually by GALLON…. thus every increase in price means a reduction in taxes on Gasoline producers. And More profits for them…. so they have no incentive to lower prices due to taxes….

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    • By BillR on July 13, 2012 at 12:04 pm

      Yeah, people seem to forget that the taxes paid are based on sales per Gallon and not the Total Price like a Sale Tax. So while the price is going up the taxes remain the same and then people start conserving and use less which means less taxes paid.

      So the GAS PRICES are a main factor to our economy, when they sky rocket the consumer and the Government lose.

      Only the BIG OIL Company’s are the ones really making the money.

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      • By Chris Sievert on May 31, 2013 at 8:42 pm

        yep they pay per gallon not per DOLLAR!

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    • By Woody on October 26, 2012 at 5:03 pm

      While factually correct, the numbers can still mislead.  The taxes shown as a percent are the taxes the consumer pays at the pump.  A portion of the price of the crude goes to the government as corporate tax.  As that expense is passed on to the consumer in the final price of the gas (along with the taxes paid by refineries, the companies shipping the fuel and the taxes paid by he retailers on proits) the taxes paid by the consumer are far higher than the price shown at the pump!

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    • By Chris Sievert on May 31, 2013 at 8:40 pm

      It isn’t misleading it shows the fallacy that a lower gas tax will lower the price at the pump! Right now Oil Companies pay taxes by the gallons sold not by the Money they take in… so if the tax is $0.20 per gallon no matter what they charge you per gallon…. what benefit do they incur for selling at $1.50 per gallon when the tax is the same if they sell their gas at $4.00 a gallon….. Now do you understand why every increase in price LOWERS a Gas Co tax burden?

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  3. By Russ Finley on March 23, 2012 at 12:24 am

    This suggests that because everybody across the globe pays roughly the same price for crude, we would all be paying roughly the same price for gasoline if we all had similar taxation.

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    • By Robert Rapier on March 23, 2012 at 11:47 am

      There are a number of oil-producing countries, however, that heavily subsidize gasoline consumption. Venezuela is an example, where you can buy gasoline for something like a dime a gallon.

      RR

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      • By Chris Sievert on May 31, 2013 at 8:34 pm

        The US Government tax for Gas is by the Gallon not by the price per gallon… which makes gas companies want to raise the cots and thus lower their taxes!

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    • By Chris Sievert on May 31, 2013 at 8:32 pm

      no this says that our gas tax is based on a finished product irreguardless of the cost of the base product… when gas was $1.50 a gallon the tax was x cents when gas is $4.00 a gallon the tax is the same x cents…. so gas companies are encouraged to raise prices because of our tax system… if it were a % per DOLLAR instead of PER Gallon it might actually help regulate prices here… It’s like if I manufacture a Widget and the Government charges me $0.05 tax per Widget when I sold them at $1.00… so if I raise my price to $2.00 per widget I pay half the tax…. why wouldn’t I raise my price to lower my tax burden? If I’m the only one or a group of just 3-4 why wouldn’t I raise my price as high as possible to lower my taxes as much as possible????

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  4. By Charles S. Opalek, PE on April 10, 2012 at 5:21 pm

    First, enough of this nonsense about oil speculators.  Anyone who has played the market knows that for every winner there is also a loser.  The guy making a killing does so at the expense of a guy losing his shirt.  This is a win-lose situation between two parties. Speculators are what stabilize the market – period.

    Second, if you want to see the price of crude oil plummet overnight, all that needs to be done is for the POTUS to announce (you don’t even really have to do it) that the Oil Depletion Allowance is going to be re-instated and that drilling on Federal lands will be opened to bidding.  The price of crude will drop like a rock!

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    • By Davis on October 5, 2012 at 6:52 pm

      Speculators….ok, I was getting gas for my car the other day and a little, old lady said to me, “These prices are awful. It is all the speculators’ fault. I am not going to buy gas today because I think the price will go down later.” I said to her, “Well, you know that makes you a speculator, right?” She huffed and drove off. We all speculate on many products, buying more when we think the price will rise and less when we think it might drop. 

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    • By Chris Sievert on May 31, 2013 at 9:45 pm

      Yes Speculators win US Consumers are the Losers! US oil production has doubled in the past 7 years how much of that oil has stayed here? Zero because China and India are willing to pay more.

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  5. By mac on May 9, 2012 at 3:28 pm

    “The price will drop like a rock.”

     

    We have not been able to provide our citizens with sufficient home-grown oil  for at least 4 or 5 decades.  We are “de facto” out of oil……….

    Drill………… Baby…………. drill…………………………

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    • By Chris Sievert on May 31, 2013 at 9:43 pm

      we have doubled our domestic oil production how much has been sold here…. zero it has been sent overseas to China and India who pay more per barrel than the US….

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  6. By mac on May 9, 2012 at 3:54 pm

    I was just kidding when I said”   “Drill, Baby, Drill”

    At best, it might marginally depress oil prices in the long term.

    It takes time to bring in new wells.  Even in the Baken  where they are bringing on new wells every 30-45 days.

    Gasoline is still a pretty good bargain….. when we consider how much money we spend of our disposable income on video games,  bottled water etc.

     

    The problem is:   (as I understand it,  is that we are eventually going to run out of the stuff)

     

     

     

     

     

     

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    • By Chris Sievert on May 31, 2013 at 9:41 pm

      Mac we’ve been drilling US oil production has doubled in the past decade… prices have decreased ummm ZERO because all that oil has been sent overseas to China and India….

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  7. By mac on May 9, 2012 at 4:18 pm

    we are eventually going to run out of the stuff  (oil)

     

    We already did  “decades ago”

     

    Now what ?

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  8. By mac on May 9, 2012 at 4:25 pm

    “Other Liquids”   ?????

    Taking up the slack for marginal oil Production ?

    Who would have ever thought ????

     

     

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  9. By Bill T on September 5, 2012 at 12:07 am

    Are we using oil faster than the Earth can make it? I’ve never really heard this addressed, but I think people tend to assume that the Earth has just stopped making fossil fuels. I don’t see any reason to think that, animals are still dying, aren’t they?

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    • By Optimist on September 5, 2012 at 6:22 pm

      ROFLOL!!!

      Thanks Bill, that was FUNNY!

      I guess if everybody agrees to use no more than their 1/100th of an ounce of oil a day, we’re gonna be OK!

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    • By Chris Sievert on May 31, 2013 at 9:10 pm

      Bill Oil deposits were from when Canada was a Tropical Climate… When the sea covered the Mississippi Valley… when swamps covered most of what is now dry land… you see any continent wide swamps today? You see any arable land that isn’t used for food production? That means we take the majority of the carbon from the land as crops harvested… Where plant/animal waste is deposited for 10′s of thousands of years? Yes that is what it takes for carbon to accumulate to make oil 250 thousand of years later…. Earth make more oil? youngest oil is 250 thousand years old and it isn’t Sweet Crude it is sour crude and takes much more energy to process into GASOLINE… Sweet Crude is MILLIONS of years old…

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  10. By common sense on September 12, 2012 at 9:40 am

    The obvious problem is in the Crude Oil Industry. What I would like to see on here is the breakdown of the actual businesses in the Crude Oil Industry….!!!  That is where the corruption is happening…!!!

     

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    • By Chris Sievert on May 31, 2013 at 8:59 pm

      Taxes have been flat…. Federal tax isn’t a % of sales it’s a flat tax per gallon sold. So every increase in price means more money for the Gasoline Companies…That’s why you will never see $2.00 a gallon ever again… no matter how much oil US Companies produce….

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  11. By common sense on September 12, 2012 at 9:44 am

    Actually, people in general only consume a small percentage of gas compared to governments, government  agencies and corporations around the world…!!!

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  12. By wojosr on September 21, 2013 at 1:50 pm

    Actually the crude oil piece of the pie is about half of what is shown as a barrel of oil (42 gallons) produces about 20 gallons of gasoline the rest is in diesel, propane, aircraft fuel, plastics etc. In fact a barrel of crude produces about 45 gallons of product. so based on prices of $105 a barrel, today, a gallon costs $2.50 of which about 48% is the cost of the crude that goes into gasoline or $1.20 per gallon plus the refining, marketing & distribution plus taxes comes to around $2.05 a gallon. So where does the rest of the $3.35 a gallon on average go? You cannot place the entire cost of a barrel of oil on gasoline when over half of the barrel produces other products which also provide profits.

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