Looking into gasoline pricing
By Allen Penticoff
I recently had the unpleasant experience of paying $2.39 per gallon for regular unleaded while filling up in the morning – only to return to the same pump in the afternoon with a different car to find that the price had gone up 16 cents to $2.55 per gallon.
Of course I filled up anyway, you know that if one goes up they all go up. Of all places I go about, Rockford has long had the most volatile pricing of gasoline. Price varies widely across town, often across the street. And it is often higher than in other nearby towns. I am not able to offer an explanation of that phenomenon, but I will detail here what goes into the price you pay at the pump.
Just like we don’t think much about how the food on our table gets there, we don’t think about what it takes to put fuel in our tank. While due to “fracking” the United States has rebounded to become a world leading oil producer once again and this is part of our reason for lower fuel costs the last several years. The price of crude oil is determined by supply, demand and inventory just like any other product. Crude oil constitutes 53 percent of the cost you are paying at the pump. Right now, crude oil is costing the refiner about $50 to $70 per 42 gallon barrel. This translates to about $1.19 to $1.67 at the pump just for the crude oil.
If the oil is coming from a foreign country it has an energy intense trip. First it is pumped out of the ground, then pumped to large tanks at a shipping terminal, then pumped aboard a large ocean tanker ship. Bear in mind every time throughout a molecule’s travels you use the word “pump” – energy is involved, usually electricity and as we know it takes energy sources that are not likely to be sustainable to make that electricity. Crude oil is thick stuff, so it takes a lot of energy to move it. The ship uses fuel to travel vast distances, then pump the oil into large tanks ashore at the refinery. The oil is then pumped into the fracking towers where a lot of energy is used to heat the oil and separate it into different distillates. Gasoline is near the top of the distillery chain and it is pumped off to big tanks where it will stay until pumped in pipelines to a regional terminal. Refining costs amount to 8 percent of what you pay.
At the terminal, tanker trucks line up to fill before heading off to retailers. It is at this point that additives such as ethanol that contribute to the cost are introduced to the fuel. All your gas, wherever you buy it is essentially the same stuff from the same place, varying only in a retailer’s additives. It is pumped out of the ground (usually) into your tank. The empty tanker truck drives back to fill up again. All this transportation and retail expense adds only 18 percent to the cost of your gallon of gasoline.
The oil industry would like me to point out that they are only earning 5.8 cents per dollar of sold product. That is a lower return than most industries that see an 8 percent return on a dollar of sales. But, as we know, there is a lot of sales of fuel products – to the tune of 20,800,000 barrels per day in the U.S. alone (up 500,000 barrels a day since 2017). That’s 117,600,000 gallons per day of crude oil (only a percentage of crude becomes gasoline). Nonetheless, that’s 42,924,000,000 gallons per year. Worldwide the number is far larger and these figures are nearly impossible to relate to. Let’s just say 43 billion gallons would fill a very large lake. And all that is going to end up in the air.
Excise taxes, local, state and federal comprise the next 21 percent of what is paid at the pump. The feds get only 18.4 cents for each gallon in your tank. State taxes, per gallon are the bigger bite and really vary substantially with Alaska being the lowest at 33 cents per gallon up to New York at 77 cents per gallon (all taxes are rounded to nearest cent). Illinois and Wisconsin are above the average at 50 cents and 51 cents each. On the few trips I’ve made to Missouri I have always held out for a fill-up there since their 36 cents per gallon tax is second lowest in the nation – and the price is consistent across the whole state – so it matters little where you fill up.
Each retailer has different overhead that affects what they are willing to sell fuel for. Generally nearby competition keeps the price down too. I have places I know to get off the interstate and fill up due to regularly low prices and I plan my trips accordingly. But for my normal running around I go to a retailer (in Wisconsin) that only sells pay at the pump gas and diesel (no convenience store). They are reliably ten cents a gallon less than in Rockford. Occasionally the same. So there is really no guarantee.
I inherited this shopping around for the lowest fuel price habit from my father. Thanks dad. Other folks just pull in wherever the urge strikes them, or the best coffee is and just pay for it and don’t even notice the price. You all have a simpler life than me.
We have a 1987 VW Vanagon Camper (sadly, it only gets 17 mpg) that I considered shipping to Europe for a summer of exploration. So I recently looked up what the price of gas is in the UK and France. $5.83/gal in the UK and $6.09/gal in France. Italy is holding out as the most expensive fuel at $6.60 per gallon. Since you are wondering, gas is not that much cheaper in Saudi Arabia than it is here at $2.06 per gallon. There is a neat world map at https://www.bloomberg.com/graphics/gas-prices/#20184:Russia:USD:g that is colored by darker blue equals higher price – click on the country you want to know the current average price.
The higher European prices have always reflected much higher taxes per gallon. They use this to fund not only infrastructure but often their social programs such as universal health care. The higher prices have also caused the citizens to buy smaller vehicles. The Europeans do not buy large four-wheel drive trucks to run about in. Yet their economies thrive. The United States could learn some lessons from our friends across the pond in this regard. Everyone screams at high taxes, but our taxes on fuel are quite low and this encourages over consumption. We could easily handle a dollar a gallon more and not ruin the economy – yet it could be that $43 billion a year could go towards paying down our $22 TRILLION national debt. Gonna take a while (512 years). If we went to an Italian-like tax of $5 per gallon of crude oil, that might generate $215 billion per year – so that pay off would be down to 102 years. Food for thought.
And this is one tax you could avoid by driving an electric vehicle – until they come up with an annual fee to make up for that lost revenue. Oh well. I hope they put that off, as we need EVs on the road and helping with ending this addiction to oil and the problems with our environment that it creates. R.