How Are Gasoline Prices Normally Calculated?

Gasoline is a classic supply and demand commodity. Higher usage normally translates into somewhat lower supply and higher demand ultimately leading to higher prices. This is especially true in the summer months.

Prices vary across Florida cities as they do nationally across regions. Retail prices are determined by a number of factors including transportation costs, location (urban, rural), average volume pumped, and competitive mix (the concentration of major oil companies and the presence of independent marketers).

According to the Energy Information Administration (EIA), an arm of the U.S. Department of Energy, the price paid by consumers can be traced to four major components. Below are those components and their approximate percentages in calculating the cost of a gallon of gasoline:

Crude Oil
The price of crude oil is easily the most significant factor in determining gasoline prices. Crude oil is a publicly traded commodity that is susceptible to market fluctuations. The U.S. holds about two percent of the world’s proven oil reserves, while we import 50 percent of the oil that Americans consume. The major U.S. ports for crude oil imports are New York, the Gulf Coast and the West Coast.

Among the reasons offered for the crude price spike was the uncertainty in Iraq, and an oil workers’ strike in Venezuela. The Venezuela strike was settled and production resumed, further assisting the crude price drop.

Federal/State/Local Taxes
Federal excise taxes are 18.4 cents per gallon. The State of Florida also levies 14.1 cents per gallon in Motor Fuel Taxes. Local governments levy anywhere from 9.6 cents per gallon in Franklin and Okaloosa Counties to 17.5 cents in several counties, creating a range of 42.1 cents in total fuel taxes and inspection fees to 52.29 cents.

Refining
Crude oil is not a usable petroleum product. Once crude reaches the United States, or is pumped from a domestic oil field, it is unloaded at refineries where it is processed into products such as gasoline, diesel fuel, and heating oil. While the U.S. has the largest refining capacity in the world, Florida does not have a refinery, resulting in higher distribution costs.

Marketing and Distribution Costs and Profits
This component includes the cost of transporting, storing and distributing gasoline from refineries to gas stations. Most of the gasoline in the U.S. is transported from refineries to wholesale terminals through pipelines. Since Florida has no significant pipelines, most gasoline is barged in from the Gulf Coast. The cost of bringing fuel into Florida is higher due to the absence of both refineries and pipelines.

Retailers have indicated their profits typically range somewhere between five and 10 cents per gallon.