If you saw the news yesterday, OIL took a dive. The price of a barrel of oil dropped nearly 9%, settling just below $100 a barrel. My question is this: Will we see a 9% drop in gas prices? It’d be awfully nice seeing that we’ve experienced a 30% spike this year in gas prices since February! This puts us about $1.00 per gallon higher than we were this time last year.
Unfortunately, I don’t see gas taking a drop anytime soon. With summer approaching and the demand potentially increasing (family vacations, more travel) along with the higher costs to refine the oil, I think gas won’t be moving downward at the rate we’d like to see.
What affects the cost of fuel and when does it adjust?
Simple supply and demand. The simple economics of supply and demand isn’t a glamorous answer, but it’s foundational to the fluctuation in price.
Refining time: It takes 3-6 months for crude to work through the refining process, so any change in the price of crude may not show up right away.
Location: Your location in the country will affect the cost of your fuel. The cost of transporting the fuel and the demand within that area will cause a change in price.
Where do we get our oil from?
I saw this chart on US EIA and thought it was interesting how we import the most oil from Canada and Mexico. Less than 10% comes from the middle east, which is fascinating to know.
Blaming it on the ‘Big Guys’
The Fortune 500 list just came out and named Exxon Mobil, Chevron, and ConocoPhillips as numbers 2, 3, and 4 on the list. The combined profits of these three oil giants exceeded $60 billion.
Before anyone starts to point fingers at the oil companies, it’s worth knowing the breakdown of what a gallon of gas costs. The US Energy Information Administration provided the following graphic on their site.
You’ll see that the price of obtaining the crude oil is the most costly part of gas at 68%. The costs to refine the oil plus the profits make up about 13% while taxes make up a good 12% of the price per gallon. Distribution and marketing fill up the tank at 7%.
It’s interesting to note that these percentages can change over the years, and looking back at the data, it can have dramatic shifts. You can see an even more extensive history of gasoline components here.
image credit (makdune)
Are you shocked by what makes up gas prices? Are you driving less because of the high prices?