| What
Makes Our Gas Prices Soar?
 Over
the past month, gasoline prices have risen an average of 60 cents
per gallon. The price of oil is creeping up to
the once unthinkable $100 a barrel mark. Soaring fuel
costs have sent shockwaves throughout the political,
business and consumer landscapes, prompting anxiety and protests
in the U.S. and across Europe.
The
reasons for this startling rise in fuel costs are many and varied.
China, with its billion+ population, has become the
world's #2 oil consumer and
may surpass
the
U.S.
in
consumption
in the coming decade. In North America, fuel production
is down 32% due to foreign oil dependence, environmental restrictions
and post-Hurricane Katrina refining capacity reduction. However,
demand for oil in the
U.S. has never been greater. U.S. Energy Secretary Samuel
Bodman
predicted
recently
on NBC's
"Meet
the
Press"
that fuel prices will remain high for many years to come because
"the suppliers have lost control of the market."
Fears
of a new world fuel crisis are on the horizon, but in the midst
of these potentially alarming circumstances, it's helpful
to take a step back and examine exactly what goes into the price
of a gallon of gas. The following overview chronicles cude
oil's journey through the production, refinery process, and
final arrival and purchase at your local gas
station.
Production
The cost of producing crude oil varies enormously from place to place. In some
parts of the Middle East, where oilfields are large and easily accessible,
the cost of extracting oil from the ground can be less than 10 cents
a barrel.
Even
with the costs of transportation and marketing, Middle
East oil can be relatively cheap to deliver to major consuming
countries because the cost of production is so low.
Major
producers such as Saudi Arabia have traditionally been
favorable to keeping oil prices relatively low, partly
because this lower price protects their market share by
making the development
of new reserves elsewhere unprofitable.
However,
new technology is bringing the cost of developing alternative
oil reserves down all the time. |
|
Trading
Crude oil, also known as petroleum, is the world's most actively
traded commodity. Physical cargoes are bought and sold
all over the world but the largest markets are in London,
New York and Singapore.
In
the past, Opec - a cartel of some leading oil producers
- has attempted to raise or reduce
oil prices by cutting or lifting supplies of crude oil
to the market.
In
practice, these artifical controls have often failed
due to fickle markets
or individual
producers that promised cutbacks but did not implement
them. The recent rise in oil price can be traced
back to 1998, when Opec cut oil production in an attempt
to raise prices. |
|
Refining
Crude oil is refined into a vast number of products. Some of
the most important are gasoline, middle distillates, which
include diesel, and fuel oil, which is used to fire power
stations
and in central heating.
Gasoline
has traditionally been the dominant refinery product
in the US. and accounts for about 17 percent of
the energy consumed in the United States. The primary
use for gasoline is in automobiles and light trucks.
Gasoline also fuels boats, recreational vehicles,
and various farm and other equipment. While gasoline
is produced year-round, extra volumes are made in
time for the summer driving season.
In
the U.S., the cost of refining - including the price
of the crude oil itself - makes up 18% of the final cost
of a gallon of gasoline. |
|
Tax
Fuel is taxed at various stages in the refining process,
and the amount of tax depends on each state government's
polices.
In
the US, tax accounts for 23% of the cost of a gallon
of gas, while in the UK - the highest fuel-taxing country,
it
accounts
for almost 73%.
Federal,
State, and local taxes are a large component of the retail
price of gasoline. Taxes (not including county
and local taxes) account for approximately 23 percent of
the cost of a gallon of gasoline. Within this national
average, Federal excise taxes are 18.4 cents per gallon
and State excise taxes average about 21 cents per gallon.
Also, eleven States levy additional State sales and other
taxes, some of which are applied to the Federal and State
excise taxes. Additional local county and city taxes can
have a significant impact on the price of gasoline.
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|
At the pump
By the time oil gets to the gas station, the price includes
the cost of the refined product, tax, distribution, marketing and
retail costs - of which the latter makes up a tiny fraction.
Since
the fuel crisis of 1973, many countries have tried to become
less dependent on oil, and have taxed fuel heavily. In the 10
years after 1973, oil consumption fell in Western Europe and
Japan by
more than 2%, and in the United States by 14%. But in the Communist
world consumption rose by 40%.
In
the last 10 years consumption in Europe has remained fairly stable.
The strongest growth in demand for fuel has been in the
Asia Pacific region, namely China and India. It has also grown
steadily in North America - which has by far the largest per
capital consumption
of oil in
the world. In the U.S., an average person consumes more than four
times as much fuel as the rest of the world, and more than twice
as much as in Europe.
Contact
FleetBoss to learn how you can save up to 20% off your fuel
costs!
© 2006 FleetBoss Global Positioning
Solutions, Inc. All rights reserved.
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