Automotive gas prices seem to be on an up rise day to day. It used to be month to month increase. Now as result of crime overseas, our gas prices are increasing everyday instead of month at a time.
Even though in the past gas prices in the U.S. have been high, it might put things into perspective to compare current gas prices on a global level scale. Europeans pay more than twice as much as Americans per gallon. The countries with natural oil resources, however, pay next to nothing with less than ten percent of the U.S. prices per gallon.
WHY ARE WE HERE WITH HIGH GASOLINE PRICES?
With natural gas prices between the United States, Europe, & Asia at comparative extremes, engineers analyze why a truly global market has thus far failed to materialize, despite both growing demand and growing production of transportable LNG; the on-going issues around long term contracts and the gas link to oil-indexation in Europe; plus the vast potential for gas-to-liquids in North America.
Strong world-wide demand growth for petroleum in the mid-2000s was a major reason for the record high prices for crude oil and gasoline in mid-2008. Then the on-set of the U.S. and world economic recession in 2008 led to a sharp drop in demand and prices. The gradual improvement in the U.S. and world economies starting in 2010 and the political events in the Middle East and North Africa in 2011 contributed to the gradual increase and spikes in crude oil and gasoline prices in 2011. Hurricanes in the Gulf of Mexico and floods in the Midwest that shut down U.S. crude oil production and negatively affected refinery and pipeline operations also caused price spikes several times during the mid and late 2000s.
Crude oil and gasoline prices fluctuated but declined overall from May to December 2011 as supply issues eased and petroleum demand followed fluctuations in the pace of recovery from the world and U.S. economic recession. The seasonal switch from summer gasoline blends to lower cost winter blends along with reduced gasoline demand also contributed to the general decline in prices in October to December 2011.
WHAT’S KEEPING RETAIL GASOLINE PRICES SO HIGH?
There are three main grades of gasoline, based on octane levels: regular, midgrade, and premium. The octane level of a fuel refers to its resistance to combustion; a fuel with a higher octane level will be less prone to pre-ignition and detonation, which is also known as engine knocking. Premium grade is the most expensive; the price difference between grades is typically about 10¢ per gallon.
The cost to produce, transport, and sell gasoline to consumers includes:
- The cost of crude oil
- Refining costs and profits
- Distribution and marketing costs and profits
Retail pump prices reflect these costs, as well as the profits (and sometimes losses) of refiners, marketers, distributors and retail station owners.
Taxes Add to the Price Increase
Federal, State, and local government taxes are the next largest part of the retail price of gasoline. Federal excise taxes are currently 18.4¢ per gallon, and State excise taxes averaged 22.06¢ per gallon at the beginning of 2011. As of January 2011, 12 States levy additional State sales and other taxes on gasoline. Additional county and city taxes can have a significant impact on the price of gasoline in some locations.
Distribution, marketing, and retail dealer costs and profits make up the remainder of the retail price of gasoline. Most gasoline is shipped from the refinery first by pipeline to terminals around consuming areas where it may be blended with other products (such as ethanol) to meet local government and market specifications, and is then delivered by tanker truck to individual gasoline stations.
Some retail outlets are owned and operated by refiners, while others are independent businesses that purchase gasoline from refiners and marketers for resale to the public. The price on the pump includes the retailer’s cost to purchase the finished gasoline and the costs of operating the service station. It also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.
The cost of doing business by individual dealers can vary greatly depending on where the dealer is located. These costs include wages and salaries, benefits, equipment, lease/rent, insurance, overhead, and State and local fees. Even retail stations next to each other can have different traffic patterns, rents, and sources of supply that affect their prices. The number and location of local competitors can also affect prices.
So you may ask HOW CAN WE STOP THESE INCREASING OF GASOLINE PRICES?. Maybe by cutting out the middle man. Maybe if there wasn’t so many taxes on the purchase of the product then it would be more cost effective for the consumer. But what it really comes down to is that it may never change and that this is something we just have to keep dealing with!