•When consumption in China/ India ↑; Demand ↑;
Price ↑
•When
OPEC ↓ production; Supply ↓; Price ↑
•Actual/expected/rumored
unrest in oil producing countries; Price ↑
• Quality
of crude: High in sulphur-content WTI crude costs less than the higher quality Brent Crude
• Nov
4, 2012: $84 a barrel ( 42 gallons); Lows: $10 (1998) $35 (2009) Highs: $147
(2011)
• This makes up over 70% of the gas price. US Presidents do NOT have any control over this.
Data Courtesy: US Energy Information Administration (eia.gov)
• Refineries convert crude oil into gasoline and account for 7-10% of gas price
• There is a cost of running a plant (Equipment, management and employees). It costs approximately $1million per refining capacity of 1000 barrels/ day. The smallest refinery in NJ has a capacity of 50,000 barrels /day
• US Capacity: 17 million barrels /day (Nov 4,
2012); 15 million ( 1985)
• Improved
technology can process at lower costs thereby leading to increased production
• Federal Governments provide permits to set up/expand refineries, to lay pipelines, etc and can become a hot button issue in presidential politics
• Conservatives claim that 'Tree Huggers' who do not understand economics, through government, make it restrictive to set up new refineries thereby increasing price of oil and limiting opportunities for employment
• Liberals claim that monopolization by greedy 'Big Oil' companies has put oil refining out of the reach of smaller companies, who shut down when it becomes unprofitable to compete against the large conglomerates. Also, various instances of high profits by big oil and ground water and air contamination has made it a very contentious political issue.
• Makes up 12-15% of gas price. Governments- both Fed and State are drivers of this component
• If gas is dearer in CA and in NY, then in Alaska and Texas, it is because of the state taxes
• Here are some of the taxes we pay:
• Federal excise tax on gasoline: App 18.4 c/gallon
• State tax/fees: 50 c/gallon in CA/NY; 15 c/gallon in WY/MO
• County specific excise tax in some cases
• And here is the contentious one. Tax on corporations that are involved in any of the processes. Will that be passed on to consumers? Conservatives say, Yes and it is fair to do so. Liberals say, No corporations will re-invest money to avoid declaring profits that will be taxed and thereby stimulate the economy.
My answer: Corporation or governments do not decide the price- we do! It all goes back to Supply and Demand. If your 1 year old is crying for milk, wouldn't you spend $20/ gallon if you have to, to go fetch it????? Or switch to a hybrid car or public transportation if it comes to that?????
• If you have been doing the math, this accounts for upto 5% of gas price at the pump
• Transportation: Taking crude oil to refineries and taking gasoline to wholesalers/ retailers
• Streetside Dynamics: Thats local Supply and Demand again. If there is only one gas station in 20 blocks, do expect to pay more than if you have one each on either side of the road.
Further Reading:
Supply and Demand
Global Gas Consumption and Prices
Back to Blog:
Can we have some gasoline, please
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