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
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 takes a closer look at the at the crude oil component’s incessant rise from 2000-2012.
Taxes Lose Influence
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
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.
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.