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Q: Fuel Cost ( Answered,   0 Comments )
Subject: Fuel Cost
Category: Business and Money > Economics
Asked by: cjgetsitright-ga
List Price: $150.00
Posted: 26 Oct 2006 19:07 PDT
Expires: 25 Nov 2006 18:07 PST
Question ID: 777299
What is the production cost of a gallon of gasoline in the United States? 
Take me through the steps this figure is calculated and the cost methods employed.

Subject: Re: Fuel Cost
Answered By: easterangel-ga on 26 Oct 2006 21:09 PDT
Hi! Thanks for the question.

The cost of a gallon of gasoline has many factors and we will try to
consider on how much it influences the prices when it comes to our
cars. For starters, let us see the typical cost components in a gallon
of gasoline.

Crude - 59% of cost
Refinery - 10%
Distribution and Marketing - 11%
Taxes - 20%

Source - "How Gas Prices Work"

The EIA has a slightly different statistic from 2005.

Crude Oil - 53%
Taxes - 19%
Refinery -19%
Distribution & Marketing Costs - 9%

Source: "A Primer on Gasoline Prices"

The following is an estimated rundown on the cost of gasoline on
September 23, 2006 from the California Energy Commission.

Distribution Costs, Marketing Costs and Profits - $0.16  	 
Crude Oil Cost 	- $1.25 	 
Refinery Cost and Profits - $0.51 	 
State Underground Storage Tank Fee - $0.01 	 
State and Local Sales Tax - $0.18 	 
State Excise Tax - $0.18 	 
Federal Excise Tax - $0.18 	 
Retail prices - $2.48

Source: "Estimated 2006 Gasoline Price Breakdown & Margins Details" 

Let us now take into account all the following components of cost in
gasoline prices and the mechanics that goes with them.

Crude - This is the so-called raw material in gasoline and as you can
see, it is the biggest cost component. The HowStuffWorks article
mentions that, usually, prices of crude oil are determined by
oil-exporting nations like the Organization of the Petroleum Exporting
Countries (OPEC). The OPEC provides a list of reasons on why crude oil
prices change.

- Supply and demand
- Limited or shortage of supply
- Trader sentiment on the true value of oil based on supply and demand
- Catastrophes 
- Bad weather
- Halt in transport of crude oil to specific destinations
- Labor problems leading to strikes
- War
- Natural disasters


Marketing & Distribution 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 that 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."

Source: "A Primer on Gasoline Prices"

Refinery Economics:

The following links discuss the finer points on what to consider in oil refineries.

"A quick lesson in refinery economics" 

"Refinery Economics" 


Our next link provides list of gas taxes per state.

"Gasoline Tax Rates by State" 

Gas Station Markup:

In the HowStuff Works article, above, there is an unmentioned cost
known as the gas station markup. Since it is understandable that gas
stations need to earn a profit as well, the article also takes it into
consideration. Here is what they have to say...

"There's no set standard for how much gas stations add on to the
price. Some may add just a couple of cents, while others may add as
much as a dime or more. However, some states have markup laws
prohibiting stations from charging less than a certain percentage over
invoice from the wholesaler. These laws are designed to protect small,
individually-owned gas stations from being driven out of business by
large chains who can afford to slash prices at select locations.'

Source - "How Gas Prices Work"

Search terms used:
production cost of gasoline
How Gas Prices Work
crude oil  pricing factors
oil refinery economics
gas taxes per state
gas station markup law

I hope this would help you in your research. Before rating this
answer, please ask for a clarification if you have a question or if
you would need further information.
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