Wh?t Drives Gas Prices?
There are three main grades of gasoline: r?gular, plu?, and premium. Each grade ?as ? different ?ctane level. Price levels v?ry by grade, but th? price differ?ntial between grades i? generally constant.
The co?t to produce ?nd deliver gas?line t? consume?s includes the cost of ?rude oil to ref?ners, refine?y processing co?ts, marketing and distrib?tion costs, and finall? the retail station costs and t?xes. Th? prices paid by consumers ?t t?e pu?p reflect all thes? costs, a? well as th? pr?fits (and sometimes losses) of refiners, mark?ters, distributors, and retail stat?on owners.
In 2005 th? pri?e of crud? oil averaged $50.23 per barrel, and cr?de oil accounted for ?bout 53 pe?cent ?f the c?st of ? gallon of regular grade gasoline. In comparison, the average pri?e for crude oil in 2004 ?as $36.98 per barrel, and it composed 47 percent of the cost ?f a gallon ?f ?egular gasolin?. The sha?e of the retail price of regul?r g?ade gasoline that crude oil costs repr?sent varies somewhat ove? ti?e and among r?gions. Today the p?ice of ? bar?el of oil i? ?bout $90 and account for about 50% of the regular component ?f th? ret?il pric? ?f gasoline. T?xes (not including ?ounty and local taxes) ac?ount for approximately 19 percent of the cost of a gallon of gasoline. Within this nat?onal average, Federal excise t?xes are 18.4 ?ents ?er gallon and State excise taxes average about 21 cents p?r gall?n. Also, eleven States levy additional State sales and other tax?s, s?me ?f wh?ch are ?pplied to the Federal and State excise taxes.
Additional l?cal county ?nd cit? taxes c?n ?ave ? significant impact on the price of gasoline. Refining costs and profits comprise about 19 p?rcent of the r?tail price of gasoline. Thi? comp?nent varies from region to ?egion d?e to th? differ?nt formulations req?ired in different ?arts of the country.
Distribution, m?rketing and retail dealer costs and profits combined make u? 9 ?ercent ?f th? ?ost ?f a gallon of gasoline. From the refinery, most gasoline is shipped fir?t by pipeline to terminals near consuming ar?as, ?nd then loaded into trucks for delive?y to indi?idual stations.
Some retail outlets a?e owned and operated ?y refiners, whil? ot?ers ar? independent b?sinesses that ?urchase gasoline for resal? to the ?ublic. The price on t?e pump reflects b?th the retailer’s purchase cost f?r the product and t?e ot?er c?sts of operating the service station. It als? reflects local market conditions and factors, s?ch a? the desi?ability ?f the location and th? mark?ting st?ategy of the owner.
Because gasoline is made of cr?de oil, th? biggest reason for t?e fluctuation ?n g?s prices h?s to be the price of that crud? oil. Essentially, cr?de ?il pr?ces are determined b? supply and demand. Howeve?, ?orld ?vents can certainly affect the pri?e ?f crude oil. T?e pri?e on a barrel of o?l r?se s?arply during t?e following world events:
• The Arab oil embargo in 1973
• The Iranian revolution in 1978
• The Iran/Iraq War in 1980
• The Persian Gulf Conflict in 1990
• The Afghanistan War
• The Iraq War
The turmoil occurring in these countri?s during these difficult times certainly affected production of o?l and thu? affected ?il prices ?s well.
Believe it o? not, even environ?ental and weat?er proble?s can affect gas prices. When Hurric?ne Katrina h?t in 2005, s?me crucial oil refiner?es loc?ted in t?e ?egion ?ere dev?stated. That meant that oil had t? b? ref?ned elsew?ere and then trans?orted. This incr?ased fuel costs with th? distance involved during this process.
That old-fashioned concept of business competit?on can also affect g?s ?rices, although, in many cases, that can actually help the consumer. With s? many gas stations, every single one wants th?ir sh?re of t?e busin?ss that is o?t ther?. If there ar? stati?ns th?t are located cl?se to each other, ?ost will lowe? their pric?s, even by a cent ?r two just to get the cons?mer to c?me to them.
On the other ?and, if the gas ?tation ?s th? onl? one aro?nd for ? few miles, the? know that they have the consumer bet?een ? r?ck and a h?rd pla?e. That’s w?y their pri?es tend to be higher than those in town.
Now in this gl?bal age international competition fuels the price of oil. Emerging countries l?ke China and India are now competing directly ?ith t?e US f?r f?el a? thes? economies become global players. Chin? is v?ry aggressive in attempts to secure oil for it's growing economy. Chin? subsidizes gasoline prices a? it attempts to stimulate gro?th at home. Everyone wants t?e American dre?m with ? TV ?n every living room and a car ?n eve? garage.
And finally the ?ra of c?eap oil i? past. Even if there is ?lenty of oil to be h?d, oil producing ?ountries realize ?il is a finite commodity and th?re are ?lenty of ?ountries willing to bid u? t?e pri?e. Investors realize there is profit to ?e made if they can push up t?e pr?ce of oil. Oil prices a?e not ?ust controlled by the law ?f supply ?nd demand. It is controlled by thos? ?ho wis? to maximize t?eir profits. Oil pr?ducing countries reduce produ?tion until the pric? is ?here the? want it. It's all a?out ?oney and a? t?e prices increas? some one makes a prof?t. W?en all the factors com?ine t?e p?ice of oil and gasoline r?se. It's th? fr?e ente?prise system ?t ?t worst ?r finest dep?nding ?n y?ur point of view.
So now that yo? ?now everything yo? need t? ?now ?bout gasoline and o?l, no? let’s lo?k at ho? altern?tive fuels are affecting th? gasoline ?arket. First, we need t? address the fact that not all ?ars can r?n on alternative fuels.
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