According to Bloomberg News, drivers in America are being squeezed at pumps, and one of the attributable factors is escalating price of oil. However, this is not the entire story.
The price of gasoline usually rises and drops along with the cost of crude, although not to the same extent or in tandem always. Adding to the woes are marketing and distribution expenses, the cost of refining, and taxes. On Wednesday, executives belonging to six different oil companies are likely to testify in front of Congress so that it can assist provide clarity on the record-high cost economics.
The four components that constitute the price of gasoline in the United States are as follows-
1. Crude
The cost of crude oil is one of the topmost contributors to gasoline price in the retail sector, the raw material that goes into fuel making. In February, the total share was at 61% in February, as per US Energy Information Administration data. This compares with 53.6% in 2021 and 54.8% since 2012. Crude costs have been set to the benchmarks of the future, which are traded across the globe.
2. Refining costs
The cost for processing fuel depends on the configurations of the refinery and the type of crude oil used, the grades of gasoline produced, and the kind of ingredients that are added. The ability to change cheap, heavy, and sour crude into refined products of high value usually depends on how sophisticated the refinery is. The seasonal trends are also a factor with the costs surging during the peak demand.
3. The burden of taxes
Local, state, and federal taxes also determine retail gasoline prices. Bloomberg News reports that as per EIA, the total state taxes and average fees are 31.02 cents per gallon as of January 1st, and the federal levy is 18.4 cents per gallon. Few states were found rolling back the taxes on gasoline last month. This is a move that the Biden administration plans to implement at the federal level.
4. Distribution and cost of marketing
It is not just the complexities of manufacturing fuel but ensuring that it reaches the final consumption point is a point as well. Starting from the refineries, the movement of gasoline is through a network of systems comprised of pipelines way to the distribution hubs across the nation. From these points, the fuel is transported to the retail outlets.
Before gasoline goes for distribution, it might be mixed with products like butane and alkylate, depending on the local requirements and the economics. At the wholesale level, ethanol is added at blends of 10%, and however, it can be even more.
The retail price of fuel usually depends on the store’s location, marketing strategies, and overhead costs, says EIA, reports Bloomberg News.
