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What Goes Into the Price of Gas?

Written by Nickel - 23 Comments

With gas prices increasing daily, I though I’d share with you some numbers from the Department of Energy regarding what goes into the price of gas as of April 2008. Here’s the breakdown:

73% – Crude oil
11% – Federal and state taxes
10% – Refining costs and profits
6% – Distribution and marketing

Not surprisingly, the cost of crude oil accounts for the majority of the cost of gas. For what it’s worth, the distribution and marketing category includes the cost of getting the gas to market plus and gas stations profits. These are pretty thin margins for gas station owners, though they’ve grown percentage-wise a bit over recent years.

Given the recent run up in oil prices, I though it would also be interesting to take a look at how things have changed in the past two years. For historical context, I’ve put together a graph of gas prices (right axis) along with a breakdown of the percentage contribution of the four different categories (left axis) for 2001-2008. All data are from the month of April during the year in question:

Note that the components are expressed in percentages, so a small percentage decrease could actually be an absolute increase (in terms of dollars) given the huge overall increase in price.

Source: DOE Gasoline Components History

Published on June 13th, 2008
Modified on August 15th, 2008 - 23 Comments
Filed under: Automotive, Energy

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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23 Responses to “What Goes Into the Price of Gas?”

  1. 1
    Funny about Money Says:

    Wow! That’s interesting. Why have the costs of refining and distribution & marketing dropped? Since gasoline is trucked to retailers in diesel trucks, you’d think the cost of distribution would track the cost of fuel.

  2. 2
    nickel Says:

    Yeah, the number on the left can be a bit misleading as they are expressed in percentages. So with the price going up so dramatically, those things could wind up costing more in absolute terms even if they’re not as big of a percentage as they used to be.

  3. 3
    Andrew Says:

    They could atleast throw in some free KY. Unfortunately I was one of the idiots that purchased a new pickup truck with a 26 gallon tank a couple years ago. $100+ for a fillup is highway robbery. How much longer until Congress gets it, and allows drilling off the Florida coast just like the Cubans and Chinese are doing? I’m thinking of switching the vehicle over to e85 (change2e85.com) becuase today it was only 2.67 a gallon in central indiana.

  4. 4
    Jack Says:

    Andrew: That move to e85 might just cost you more with the lower MPG you will get.

    See this story: http://www.edmunds.com/advice/.....ticle.html

  5. 5
    "Mo" Money Says:

    I find this data very interesting especially due to the fact that Congress wants to tax windfall profits from the gas compaines. As I understand it the government both state and federal make more on a gallon of gas than the gas companies do.

  6. 6
    Mare Says:

    Wow that’s interesting, thanks for posting that.

  7. 7
    Andrew Says:

    Jack,

    There are several issues with the Edmund’s article.

    1.) They used the stock manufacturer’s flex fuel technology. The fuel maps, etc, that are in the stock electronics are no where as good as the aftermarket stuff.
    http://www.change2e85.com

    2.) They didn’t follow any reccomendations to help improve overall fuel system efficiency like the following. Replacing the filter with a K&N high flow filter, or similar. Replace the spark plugs with higher quality spark plugs to ensure good ignition. Replacing the fuel filter after running a tank of ethanol. The alcohol is going to clean all of the gunk out of the fuel lines and tank, and deposit that stuff in the fuel filter.

    3.) Ethanol is very cheap in Indiana, and other midwestern states. http://www.e85prices.com. Right now there is an over 30% spread between the cost of e85 and gasoline. If I were to go from 15mpg on gasoline to 12 mpg on e85, I’m stills saving money.

    4.) I would rather give my hard earned energy dollars to American farmers, than terrorists.

  8. 8
    Independent George Says:

    See also this article in US News about the impact of the falling dollar on crude prices.

  9. 9
    Dollar Frugal Says:

    Corn ethanol is not efficient. Americans are protecting our farmers by using corn ethanol, while there is a much more efficient ethanol out there. We’re polluting the environment more than we have to.

    Brazil uses sugar cane alcohol and gasohol. The process uses the whole plant, instead of just the corn, providing energy to process itself. Sugar is the greatest provider of energy (much more efficient than corn), so it’s all pretty intuitive.

    http://en.wikipedia.org/wiki/E....._in_Brazil

  10. 10
    Dollar Frugal Says:

    Oh and by the way, Andrew, Brazilians aren’t terrorists, either.

  11. 11
    Jason Says:

    These numbers are pretty typical. I’ve seen similar charts before at work (I’m a chemical engineer at a midsized independent refinery). We don’t have any production, so we have to buy all of our oil and have it shipped in thru pipelines.

    The Exxon’s of the world are making a lot of their money in production, not the sale of gasoline. Diesel makes more money than gasoline for most refineries due to the higher selling price.

  12. 12
    May Says:

    I think it’s interesting that the cost of gas doesn’t include the war we’re fighting to get it over here! Add that on and it’s about $12 a gallon.

  13. 13
    Jb Says:

    And this is what it looks like in central Europe – currently around 9 a gallon

    http://youmustbefromaway.blogs.....s-gas.html

  14. 14
    Andrew D Says:

    It would be very interesting to know what the “cost” breakdown is for the “crude oil” component; right now that number is the delivered cost to the refinery. But what goes into that number — the largest by far? What does production of crude oil ‘cost’ – and who gets that money?

  15. 15
    Ray Says:

    jb: You need to quote your own article:

    “With oil at its current price of $120 a barrel, tax makes up a good 60% of the pump price of €1.50 litre.”

    60% in taxes!
    Pardon me if I don’t cry.

  16. 16
    dangermike Says:

    This data is presented poorly. The percentages should be multiplied through the absolute price and then assembled into a stacked bar or line graph. That way, the absolute prices of each component would be directly readable and the percentages would be easily inferred by their individual heights with respect to the stacked height of all the components.

  17. 17
    nickel Says:

    dangermike: You have the link to the raw data. Have at it.

  18. 18
    Jason Says:

    Andrew,

    I’ll try to answer your question, but I’m not sure exactly what you mean. Do you mean what % of crude oil goes to gasoline, diesel, kerosene, etc?

  19. 19
    Daniel Says:

    “Why have the costs of refining and distribution & marketing dropped?”

    I’m thinking they haven’t. But the PERCENTAGE OF THE TOTAL that they represent HAS dropped, as the cost of unrefined oil has risen.

    I think that combining dollars and percentages on one graph was a bad idea.

  20. 20
    Tubulus Says:

    Ray –
    60% in tax…if only we had that here for the past 20 years! Than maybe we would have raised enough money to have a great rail system like in Europe and wouldn’t have to drive everywhere, and we’d be much less bothered by the move in oil. In Europe, the move in oil has had a much smaller effect on gas price (on a percentage basis) than here.

  21. 21
    Johnny Says:

    Tubulus-
    I seriously doubt it. The tax revenue would simply be squandered on do-nothing social programs that just create do-nothing people. What is needed is for government to back the F off, let business do what it does best: solve problems. Anything the government puts their hands on turns to sh*t.

    It would be interesting to see the same graph during the early to mid 70’s when the Arabs tried to shaft us, and the Carter administration, in their zeal to “do something” implemented price controls, essentially throwing a monkey wrench into market forces, making it unattractive to even refine or sell oil.

  22. 22
    Fran Says:

    I read an extremely relevant, interesting post on why gas is so expensive the last couple of years, which matches exactly with the graph:

    http://gaspass.wordpress.com/2.....ce-of-gas/

    The title of that post really got my attention. It is called, “What the Frack is Going On With the Price of Gas?”

    The price can be cut in half overnight. It’s worth reading…

    -Fran

  23. 23
    Abdul Says:

    Look.. i know you are probably 18 years old and trying to show us you are so smart and witty.

    The cost of refining hasn’t dropped. The PERCENTAGE of a price of gas has just gone down. Costs of distribution could double, but if the cost of material triples, then the % cost of distribution would go down.

    Try taking a few economics courses first, before amazing us with your wit.

    re:
    Wow! That’s interesting. Why have the costs of refining and distribution & marketing dropped? Since gasoline is trucked to retailers in diesel trucks, you’d think the cost of distribution would track the cost of fuel.
    Comment by Funny about Money — Jun 13th 2008 @ 10:04 am

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