How Are Gas Prices Calculated?

February 5th, 2013 by

gas-pumpMost of us know that gas prices are going to go up a lot in May and stay high throughout the summer. We know what the trends are, but not necessarily how that price we see at the local gas station gets to be that. Many people will tell you it’s all based on the price of crude oil, but there are actually quite a few different factors that make up the price.

Crude Oil & Refining

While it’s not everything, crude oil is one of the most important factors in the price of gas. The price of crude oil is determined by the country exporting the gas and that’s not all. Supply and demand determines the price, which is why gas tends to go up after a natural disaster, but also the type of crude oil. Crude oil can vary considerably and some types cost more to refine.

While not as costly as the crude oil itself, the oil still needs to be refined. Part of the cost you pay is going to those refinery people too.

Distribution and Advertising

After the oil is refined, it still needs to get to the gas station. The person driving the truck that replenishes a gas station has to get paid too. The longer it takes to get the gas to you, the higher gas prices might be in your area. It’s going to be a lot cheaper for people living near the Gulf of Mexico than it is for us in the Midwest.

State and Federal Taxes

There’s a federal gas tax for everyone in addition to a state tax, which also helps make gas prices wildly different across state lines. In Illinois, taxes are comparably higher than elsewhere. Fortunately, everywhere in the United States is going to be better than fueling up in Europe where gas taxes are incredible.

The Gas Station Needs Money Too

While usually only a few cents, the gas station has got to stay in business too. There are markup laws in some states, but most gas stations set their own markup price. Living in a populous area with a lot of gas stations is going to promote competition and stations won’t be able to mark up too much, but if you live in an area with only one gas station…well, you better hope the owner isn’t greedy.

Posted in General