Juggling a budget when fuel prices rise and lower seemingly at will is sometimes a challenge; especially with the cost of fuel affects every part of the budget from groceries to consumer goods shipping costs, to travel expenses. Feeling the impact of these ever fluctuating expenses may have prompted you to wonder what the source of all of the price changes is that affect your life in such an all-encompassing manner. Well, here’s your answer.
Approximately 70 percent of the cost associated with the price that you pay at the pump for gasoline is the cost of crude oil. Crude oil is what gas starts out as before it has been processed.
Since crude oil is a commodity, its price fluctuates with the stock market along with world events, and the laws of supply and demand. As a commodity based product, this aspect of pricing is often volatile affecting gasoline prices the most sporadically.
The next biggest portion of your fuel costs is taxes. Since each city, county, and state regulate their own taxes in addition to federal and import taxes that may be applicable, taxes are what create the substantial gaps in pricing that you see from state to state and region to region. On a national level, taxes make up approximately 13 percent of the total cost of your gas.
In order to process crude oil into the gasoline that your vehicle uses, it must first be refined. The refining process removes impurities and separates out other aspects of crude oil that would clog your engine as well as affect the products combustibility. This refining process accounts for about 11 percent of the costs associated with producing gasoline.
Distribution and Marketing
The final 9 percent of overhead expenses that make up the cost of the gas you put into your car is the cost of distribution and marketing. These costs are directly related to transporting the gasoline that you use from the refineries to the gas stations.
Included in these costs are the advertising and marketing expenses that oil companies spend to get you to purchase their brand of petrol.
Marketing costs also include those marketing expenses that are incurred toward public relations when promoting the industry’s sustainability, environmental responsibility, and any clean-up efforts that they may be performing as a direct result of a leak or spill.
Legal fees, fines, and settlement costs are also included in this category on a by company basis as not all companies have the same overhead in these areas.
Understanding from where your Gas Prices Stem
Gasoline is a commodity that is a byproduct of a highly sought after commodity item; oil. As such, its pricing will remain to be continually changing with world events, and consumer demand for the product. Large overhead costs which include, extensive taxation and distribution and marketing cost add to the already fluctuating expense associated with providing you with the fuel source that you rely on so heavily; and will continue to affect the prices that you pay at the pump for as long as gasoline is a primary fuel source.