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Saturday, June 04, 2011

Gasoline Pump Prices

What amkes up the price of a gallon of gas or diesel fuel at the pump? The federal Energy Infomatioon Agency has the info at Gasoline and Diesel Fuel Update from whence cometh these graphics:

So, the biggest component is crude oil pricing. Which, in case you forgot, is driven by - supply and demand of crude oil.


  1. Chuck Hill4:44 PM

    And the monopoly power of OPEC.

  2. Well, we could develop our own resources . . .

  3. Price action on crude has been more based on speculation and fear of what may happen in the Middle East and Africa than actual supply and demand. Recently the demand has shown a slow down and less has been taken from our reserves than projected, yet the price still hovers at about $100 a barrel.

    I think the recent decline (~110 to the present 100) in oil stems more from the increase in margins than true fundamentals.

    I totally agree that we should be developing our own oil resources to the fullest extent.

  4. Chuck Hill1:51 PM

    Better we use up their oil first.

  5. Some thoughts from logistics type,non-oil engineer:
    1) the means the oil industry uses to "control" or affect gas prices at the pump are in the distribution system. A lack of refineries, tank farms and pipelines server as a constriction on the flow of oil from pier to pump. The oil indsutry as a whole and govt regulators as a subset control how MUCH product is delivered and therefore its cost
    2) Why does the price of gas spike immediately when the price per barrel at its source changes? Shouldn't there be some lagtime for transportation built in?
    3) IF we are getting a significant amount of oil out of wells in CONUS, shouldn't the cost for that gas be much lower and be reflected in discounted prices at the pump? Shouldn't US producers be selling for less?

  6. Actually, refineries are hugely expensive and new refinery development is discouraged by environmental concerns and legislation. There is plenty of pipeline and storage tank capacity.

    A major constraint on gas prices is the need to have a large number of different blends to meet environment requirements in different areas of the country see here.

    Crude oil is fungible and prices are global - so that the price at the pump has to reflect replacement cost of the gallon you just bought- which may be higher or lower, but is immediate.

    Transportation cost of crude oil and refined product is low due to shipping and pipeline efficiencies. That's covered in the distribution and marketing cost (about 5%) from oil field to gas pump. At $4 a gallon for gasoline, 5% is $.20 per gallon. I don't know what the transportation costs (including the cost of getting raw materials to the manufacturer) of getting a gallon on soda from maker to market is, but I bet 5% would be in line.

    Taxes are $.40 per gallon.