Why gas is cheap

Yesterday, crude oil prices hit $145 per barrel for August delivery, and current spot prices are not far behind. According to the AAA fuel-gauge report, the national average price for a gallon of regular unleaded is now $4.10 – and this is actually a steal.

For every 100 barrels of crude oil a U.S. refinery purchases, about 47 barrels of gasoline are produced. Gasoline is delivered from oil refineries through pipelines to a distribution chain serving about 167,500 retail gasoline stations in the United States.

In 2007, for every gallon of regular grade gas we bought at the pump, approximately 53% of the price covered the cost of crude oil, 15% went to state and federal taxes, 10% paid for distribution and marketing, and only 17% actually went to refineries.

In July 2007, the inflation-adjusted average crude oil price was also only $68 per barrel. At that time, the average price for a gallon of regular was $2.95.

Scaling to today’s prices, for every gallon of regular gas we now buy at the pump, approximately 81% of the price we pay covers the cost of crude oil, 10% goes to taxes, 6% pays for distribution and marketing, and refineries are now losing money for every gallon of gas they sell.

Realistically, there is up to a 3-month delay between the time a refinery purchases a barrel of crude oil and then sells it at the pump. But even going by April’s average crude oil price of 104.31 per barrel, refineries are still facing significantly smaller profit margins.

This means that even if the price of crude oil does not continue to rise, gas prices will still be ramping up for at least another 3 months, and will stay high until refineries are able to reclaim some profits. Pump gas – get it while it’s cheap!

Advertisements

One Response to Why gas is cheap

  1. bumscientist says:

    I saw $4.97 for premium today.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: