TAMPA, Fla. — ABC Action News goes in-depth on what helps fuel the price (and sometimes pain) at the pump.
The price of gasoline is not determined by the amount of oil produced in the US; rather, it is determined by the price of oil on a global scale and subject to supply and demand issues. As a result, some experts say increasing US oil production won't result in lower gas prices.
So what determines the retail price of gasoline? It turns out quite a bit.
According to The U.S. Energy Information Administration, there are four main components to determine the retail price of gasoline.
- The cost of crude oil
- Refining costs and profits
- Distribution and marketing costs and profits
- Taxes
The cost of crude oil
The main element of the retail price of gasoline is made up of the cost of crude oil, whose cost as a share of the retail price varies over time and in different parts of the country. This is also arguably the most volatile part of the cost of gasoline, as oil prices can fluctuate daily.
Refining and profits
The characteristics of the gasoline produced depend on the kind of crude oil used and the kind of processing technologies available at the refinery. The price of additional materials that may be added to gasoline, such as fuel ethanol, influences gasoline prices as well. The demand for fuel frequently increases throughout the summer, which raises prices. Refiners also have two different blends of gasoline, summer and winter, that can also impact the price of gasoline.
Distribution and marketing costs and profits
The retail price of gasoline includes distribution, marketing, and retail dealer costs and profits. Most of the gasoline is pipelined from refineries to terminals near consumption areas, where it is blended with other products, such as fuel ethanol, to meet local government and market specifications. Tanker trucks deliver gasoline to individual gas stations. The price at the pump is also affected by local market conditions and factors such as the fueling location and the owner's marketing strategy.
Taxes
In some areas, sales taxes, as well as taxes imposed by local and municipal governments, can have a significant impact on the price of gasoline. As of January 1, 2022, the total state taxes and fees on gasoline averaged 31.02 cents per gallon. In Florida, the gas tax stands at $0.253 a gallon as of 2022.
Why are gas prices high?
Global commodities like oil and gas are vulnerable to the volatility of markets. Their prices are especially susceptible to market mood and geopolitical developments.
Consequently, anything from pandemics to war to elections can cause dramatic changes in price, all of which the world is experiencing today.
Demand for oil increased as COVID-19 limitations loosened, and economies quickly recovered. Gas prices increased as a result of supply chain disruptions brought on by the pandemic. Then, the war between Ukraine and Russia started earlier this year. All of it combined to send oil prices soaring which then spiked gas prices.
According to the American Fuel & Petrochemical Manufacturers, in 2021, increased Russian imports to refineries in California and Washington state helped offset decreased imports of crude oil from other nations, particularly Nigeria, and decreased rail shipments of crude oil produced in the United States to Washington.
Even though less than 2% of the United States' oil supply came from Russia, customers have been impacted by the halt of Russian oil shipments.
Oil and gas sector representatives urge more drilling, claiming that this would lower the current gas prices. However, this would not give customers quick relief, according to the Natural Resources Defense Council (NRDC). The NRDC said even if the United States issued more permits for oil drilling and every oil corporation participated, an average federal drilling lease does not start producing commercially viable amounts of oil or gas until more than ten years after it is issued.
The United States House of Representatives passed legislation in May of this year authorizing the president to declare an energy emergency, making it illegal for companies to increase gasoline and home fuel prices excessively. However, the bill is unlikely to move past an evenly divided Senate to President Joe Biden's desk.
