| Gasoline Pricing: An Explanation | |
Gasoline is delivered from oil refineries mainly through pipelines to a massive distribution chain serving 176,000 retail gasoline stations throughout the United States 1.
The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and finally, the retail station costs and taxes. The prices paid by consumers at the pump reflect these costs, as well as the profits (and sometimes losses) of refiners, marketers, distributors, and retail station owners.
Figure 1. What Do We Pay for in a Gallon of Regular
Grade Gasoline?
Source: Energy Information Administration
Federal, State and Local Taxes
Taxes (not including county and local taxes) account for approximately 28 percent of the cost of a gallon of gasoline. Within this national average, Federal excise taxes are 18.4 cents per gallon and State excise taxes average about 20 cents per gallon. Also, some States levy additional State sales taxes, some of which are applied to the Federal and State excise taxes 2. Additional local county and city taxes can have a significant impact on the price of gasoline.
Refining Costs
This component varies from region to region due to the different formulations required in different parts of the country.
Distribution, Marketing and Retail Station Costs
From the refinery, most gasoline is shipped first by pipeline to terminals near consuming areas, then loaded into trucks for delivery to individual stations. Some retail outlets are owned and operated by refiners, while others are independent businesses which purchase gasoline for resale to the public. The price on the pump reflects both the retailer’s purchase cost for the product and the other costs of operating the service station. It also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.
Sources
1 National Petroleum News, Market Facts 2000, Mid-July 2000, p. 120.
2 U. S. Department of Transportation, Federal Highway Administration, Monthly Motor Fuel Reported by States,February 2000, Table MF-121T.
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