The Basic Components of Gas Prices
The price you pay at the pump is a combination of different charges. Approximately 58% of the price you pay goes to the price of crude oil. The overall price of gas increases when the oil and gas companies experience shortages due to price increases from oil suppliers. In addition to the price of crude oil, the charge at the pump also includes 15% for federal and state taxes. The national and state governments use the revenue from gas in order to pay for public services. Approximately 17% goes to the costs of refining the oil and profits for gas and oil companies, including gas stations. Finally, 10% of the price of gas at the pump goes to distribution and marketing.
The Main Reasons For Price Increases
Since the biggest portion of the price of gas is the cost of crude oil, it makes sense that this price plays the biggest factor in price increases. Changes in tax laws aside, the price of crude oil can be considered the only major factor for the cost of gas. The laws of supply and demand also impact oil and have an effect on what you pay back home. When there is a shortage of gas, the price will go up.
Even when the price of crude oil is relatively stable, the price of gas can fluctuate depending on the season. The retail price of gas tends to be affected by the time of year. If you've ever thought that gas prices seem to rise in the summertime, you're not imagining things. During the summer time, there is a greater demand for gas across the country. Since more people are taking vacations and driving around than any other time of year, the result is higher gas prices. The price of crude oil generally increases 10 to 20 cents each month from January to June.
The biggest thing that I found out is that gas is purchased at least a year in advance at a set price. For instance, company A purchases a barrel of oil at $75, gas prices are $2.25 a gallon at the time. Things jump off in the middle east or somewhere else where oil is being produced and a year later. The price of a barrel goes up, naturally due to supply and demand, but here is the kicker: The oil that was purchased the previous year is hitting local gas stations and oil that should be $2.25 because it was purchased and processed a year ago, is now $3.60 without having anything else done to it to raise cost. Basically, they operate off of fear and it makes me sick. That is how they make billions of dollars every year, fear.And now you know.