What are the main components of the retail price of gasoline?
- The cost of crude oil
- Refining costs and profits
- Distribution and marketing costs, plus a reasonable profit margin
- Local, state and federal taxes
What determines the cost of crude oil?
The cost of crude oil is the largest factor in the retail price of gasoline. The cost of crude oil as a share of the retail gasoline price varies over time and across regions of the country. U.S crude oil prices are determined by global fundamentals, including supply and demand, inventories, seasonality, financial market considerations and expectations.
Taxes add to the price of gasoline
Federal, state, and local government taxes also contribute to the retail price of gasoline. The federal excise tax is 18.30¢ per gallon, and the federal Leaking Underground Storage Tank fee is 0.1¢ per gallon. As of January 1, 2019, state taxes and fees on gasoline averaged 28.31¢ per gallon. Sales taxes along with taxes applied by local and municipal governments also can have a significant impact on gasoline prices in some locations.
Refining costs and profits
Refining costs and profits vary seasonally and by region of the United States, partly because of the different gasoline formulations required to reduce air pollution in different parts of the country. The characteristics of the gasoline produced depend on the type of crude oil that is used and the types of processing technologies available at the refinery where it is produced. Gasoline prices are also affected by the cost of other ingredients that may be blended into the gasoline, such as ethanol. Increased demand for gasoline in the summer generally results in higher prices.
Distribution and marketing
Distribution, marketing, and retail dealer costs and profits are also included in the retail price of gasoline. Most gasoline is shipped from refineries by pipeline to terminals near consuming areas, where it may be blended with other products (such as ethanol) to meet local government and market specifications. Gasoline is delivered by tanker truck to individual gasoline stations.
Some retail outlets are owned and operated by refiners, while others are independent businesses that purchase gasoline from refiners and marketers for resale to the public. The price at the pump also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.
The cost of doing business by individual dealers can vary greatly depending on where the dealer is located. These costs include wages and salaries, benefits, equipment, lease or rent payments, insurance, overhead, and state and local fees. Even retail stations next to each other can have different traffic patterns, rent, and sources of supply that affect their prices. The number and location of local competitors can also affect price.