In the past year, crude oil prices have risen dramatically; driven by strong
global demand, limited spare oil production capacity, and reduced supply as
a result of recent hurricanes in the Gulf of Mexico region.
Crude oil prices are important in determining gasoline prices because crude
is the primary raw material
used to produce gasoline. In some cases, the price of crude oil may account
for up to half the price of
a gallon of gasoline.
For example, there are 42 gallons in each barrel of oil. If the price of
crude oil is $60 a barrel, the cost of the raw material required to produce
a gallon of gasoline is $1.43. This figure does not include costs incurred
from the refining process, transportation to distribution hubs or
wholesalers and delivery to retail locations.
Each gallon of gasoline also is subject to a number of taxes and fees which
vary by state. In California for example, the price of gasoline includes
Federal motor fuel excise tax, California motor fuel excise tax,
state/local/sales tax and miscellaneous fees totaling about 60 cents a
gallon.
After the crude oil is processed through the refinery, the finished gasoline
product is transported to a terminal, where it may be sold to a wholesaler
for distribution to the wholesaler's retail network or delivered to their
retail location. There the dealer sets the "street price" which includes a
margin to account for the retailer's cost of doing business at that
particular location and the retailer's profit.
Sources: U.S. Energy Information Administration & Noble
Royalties, Inc.; May 2007 |
