Where Does Your Three Dollars Per Gallon Really Go?
November 12th, 2007 Posted in Eric Peters, Fuel
No one likes paying $35 for a fill-up that used to cost $15. But where does all your dinero go, actually? Is it Big Oil — or Big Government — that’s got you over a barrel?
Let’s break it down.
Crude Oil
Believe it or not, the cost of the oil itself is pretty low, roughly about 50 cents of the current per-gallon retail price of fuel. Even though world demand for oil continues to uptick steadily (and geometrically), the oil producing countries have kept pace - opening the spigots all the way. There appears to be plenty of oil, actually.
It’s mostly market volatility (which is based to a great extent on the social/political volatility of the situation in oil-producing areas and countries like Iraq and Venezuela) and artificial decreases in production by OPEC states that causes the world price of a gallon of crude to fluctuate like a haywire Geiger counter.
Who to blame? Unstable government, radical regimes; market manipulators, current events.
Refining/Distribution Costs
This is the big one, bottom-line wise. Around 50-75 cents of what you’re paying per gallon at the pump (depending on where you live/the time of year) goes to offset the cost of turning light sweet crude into something that will burn in your car’s engine. And burn cleanly, it’s important to add.
There are multiple (and varying) requirements for retail gasoline - including that it be "oxygenated" or "reformulated" in some areas (and at certain times of the year) as a means of curbing vehicle exhaust emissions. This is not cheap. In fact, the add-on costs of complying with federal and state motor fuels requirements have increased massively over the past 20 years.
It is often necessary, for example, to brew one type of fuel for one state - and a slightly different one for an adjacent state. These fuels must then be transported separately, via dedicated pipelines or trucks. That gets into bucks, fast. Also, refiners must guesstimate how much of a given type of gas to produce; if demand ends up exceeding supply, the price goes up.
Who to blame? Your federal and state lawmakers; excessive bureaucracy, conflicting/counterproductive regulations; air pollution.
Motor Fuels Taxes
This one’s beefy, too. Depending on where you live, you’re paying another 50 cents (or more) in federal, state and local motor fuels taxes on every gallon you burn.
The good news: As the total price of a gallon of regular unleaded shot up from around $1.50 just a few years ago to $3 or more today, the relative cost of motor fuels taxes has gone down. They used to account for about a third of the total price we paid; that’s now down to about a fourth. Feel better now?
Who to blame? The government, at all levels.
Oil Company Profits
In a word, huge. About 75 cents to $1 out of the $3 something you are paying at the pump - depending on whose numbers you use (or believe). This accounts for the record profits we’ve all read about. However, there is a caveat here - and it is "net" vs. "gross" profits.
While there’s no question the oil companies have been raking it in lately, there is a question as to just how much is actually left over after taking into account operating expenses and other things (including massive CEO pay packages) that detract from the bottom line. The true number is hard to gauge. But rest assured, it’s not small.
Who to blame? The oil companies. They have something you not only want but pretty much must have. You’ll pay what they say - like it or not.
Small Stuff
The remaining chump change (about 10-15 cents per gallon) goes to pay for things like credit card fees, mark-up/profit for the individual gas station dealer (he has to make money, too) and so on. Trying to make a buck selling gas on the retail level is actually a very tough proposition.
Your local gas n’ go very likely makes more money on its mini-mart than it does on the fuel it sells - so don’t get mad at him when the gas you bought yesterday for $3.10 is selling for $3.29 on Saturday morning. He’s probably feeling just as screwed as you.
Who to blame? No one. We’re in this one together.
This is a guest post by automotive columnist Eric Peters, check him out on the web at www.ericpetersautos.com.
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26 Responses to “Where Does Your Three Dollars Per Gallon Really Go?”
By Carl on Jan 31, 2008
Miracle carburators from 1976 are an urban legend and are technically ludecrous! Lets face facts, even electronic carbs aren’t capible of compensating for changes in the weather and run differently from one day to the next. Vaporization schemes are rediculous, we may as well put sails on our cars.
Scavenging heat energy wasted by internal combustion engines is obvioysly the first easy thing we should do. Scavenging lost heat is something so obvious that even the most dim witted individual would know that it should have been standard equipment on cars since the 40’s. Even though energy was cheap then it shouldn’t have been throwh away like so much excess trash. Even something so idiotically simple as creating on demand steam from heat in the nearly red hot exhaust manifold to generate electrical power would be a vast improvement. I’m also convinced that the government, oil companies and detroit do not want vechicles to get the best fuel milage possible. Fuel economy must be metered to us slowly to get the last drops from old delapidated refineries and to maximize their profits. They make record profits, but are afraid to invest in new facilities in a changing environment. You’d think they knew the end of the world was near and the one with the most money wins.
Concerning blame for the high price of fuels. Is it the fault of the oil companies? Yes! Is it the fault of the politicians? Yes! Is it the fault of the consumers? Yes! The oil companies are cold heartless machines that thrive on profits. The politicians accept huge contrabutions from energy concerns (such as Enron et ‘al in the case of G W Bush). They aren’t likely to bite the hand that put them in office, so they are soft on these companies at our expense. Also many neo-cons are oil men. But we “The People” are ultimately to blame for putting up with their continuing schanagans. And don’t even get me started on heating fuel oil. It cost me $600.00 for 200 gallons.
Now for the coup d’gras and the reason that Iran and Iraq seem to dislike us! Back in 1969, Kissinger went to the middle east to sign an agreement with all the Arabic and Persian oil producing countries. We were supposed to buy a certain amount of oil from them and they would in turn buy some questionable US investments, like floundering securities (which strangely is happening right freakin’ now) and over priced gold. Iran and Iraq refused to sign on to the agreement and instead wanted to underbid their neighbors in a free market economy (”The American Way”). This now also been similarly applied to Venezuela, which we have been meddling with for a while now and will almost certainly have a military conflict with in the near future.
Don’t give up your right to vote. Vote for Ron Paul (he’s the least rotten fruit in the basket), he’s a real wacko, he believs in the Constitution and isn’t conning us by waiving crosses, Bibles or The Book of Mormon at us.
By deachgo on Dec 26, 2007
$25/barrel when Bush started his presidency.
Near $100/barrel when he ends his presidency.
Not too shabby of a return for his personal(family and his buddies)inc. Cheney’s investments for 8 yrs. 400% return at our troops expense. Every other politician gets indicted for trying to increase his net wealth while he is in office. The more kaos in the Middle East the more Bush’s net worth rises.
Bush is one smart president!
By B-Man on Dec 18, 2007
The world is running out of oil. Prices will go up indefinately. A major shock is coming to this world, and a major readjustment will be necessary for our civilization. Someday, firing up a half ton of steel to go down the block to get milk will seem ridiculous. Read The Long Emergency.
By DAN THE GAS MAN on Dec 3, 2007
txblbnt..hey if you think retailers dbl their markup you are truly confused. The avg. gas station makes 6- 10cents a gallon unless thier gauging. Also they are basically told how to price thier gas by a broker not by thier wife
By PETER on Nov 27, 2007
THE COST OF THE CRUDE OIL ALONE IN A GALLON OF GASOLINE IS ABOUT $2.20. MOST OF THE MONEY GOES TO FOREIGN GOVERNMENTS.
THE COMPLETE BREAKDOWN CAN BE FOUND AT:http://www.energy.ca.gov/gasoline/margins/index.html
By Mike on Nov 25, 2007
Like I said hubcap I was using your tactics.
By hubcap on Nov 24, 2007
Mike,
Wildly embellish what I wrote almost to the point of fabrication, and then refute it with obvious details. You build a helluva straw man; nicely done!
By Mike on Nov 23, 2007
Hubcap, whats really amusing is your comments. Indeed there is a finite amount of energy in a gallon of gas(or any other fuel). In the process of moving y weight at z speed as you put it a typical gasoline powered vehicle today squanders about 4 units of energy to heat and friction loss for every unit it actually uses. Your belief that there is no room for improvement(I’m using your tactics now) is assenine.
If you must insist on categorizing everyone else as a flag waving war monger eager to send more money to Washington to kill peaceful Muslims while “whining” about paying to have roads fixed(I’m using your tactics again)mabye your views are to weak to stand on their own.
I have worked for government and if I had a nickel for every dollar they waste I could buy that Carribean island you retire on and raise your taxes till your ecstatic. If people like you who falsly believe that gasoline taxes are user taxes(I know you didn’t say that but since you can put words in everyones mouth what the heck) understood that billions of dollars from gas taxes are funneled directly into the general budget you might realize that money for infrastructure is already there. Like social security it’s being used for all sorts of things it was never intended for. The last increase in the federal gasoline tax of 4 cents a gallon by president Clinton went entirely into the general budget and is now helping to fund the war and you want to blame republicans(yeah I know you didn’t exactly say that but then again I never said democrats were responsible for the current price of gasoline as you claimed).
As for your accusation that I “want to blame the party that wasn’t in power” for some future tax increases I stand guily as charged. It’s time someone pointed out to you that George Bush is a lame duck president who isn’t running again. Democrats have controlled congress now for 11 months and not only have they not ended the war enough of them supported him to allow the number of troops to be increased. When we vote unlike you most of us are considering the future. If I take into consideration promises for massive increases in the federal gasoline tax then so be it.
By hubcap on Nov 23, 2007
It’s quite amusing to watch people whining about paying taxes. You must think the infrastructure that supports your lifestyle was miraculously put here by god or something.
Newsflash, it has to be paid for and it ain’t cheap. But it’s funny; no one seems to mind giving up half their paycheck to finance the botched invasion of a country which was no threat, but when you’re asked to kick down for some road maintenance and public transit, you shriek like a spoiled child.
Frankly I don’t think any politicians–Democratic or Republican–have the balls to increase taxes to the levels that will be necessary to address this country’s social, energy, infrastructure and environmental problems.
By hubcap on Nov 23, 2007
Lawrence,
Puh-leeze! I spent twenty years fixing cars in dealerships of the big three, but mostly for Ford.
If I had a nickel for every time I’ve heard that or some similar wild-assed tale, I would have retired to the Caribbean a long time ago.
There is a finite amount of energy in a given amount of gasoline. It takes X energy to move Y weight at Z speed. Period. No fuel metering technology is going to alter that basic fact - especially not a carburetor and especially not a carburetor in 1976.
For anyone who actually believes that story, I know a Nigerian who needs help transferring funds to an American bank.
By Don Brockhage on Nov 23, 2007
More notes on emulsion fuels:
EPA has given approval on diesel emulsion fuels, with no plans for gasoline at present.
Europe with 75% of all vehicles using diesel is ahead of us emulsion fuels with several companies getting into it.
City busses in Reno Nevada and Sacramento were using a 50/50 emulsion mixture for several years during its development stage.
No modification to the engine of your car or truck is needed to run an emulsion fuel.
By Don Brockhage on Nov 23, 2007
The politicians that want to add 50 cents to a gallon are out of their minds. Once this tax becomes effective it will never go away!
The truth is that our government already has the answer! The technology is already in practice today that can reduce our use of gasoline and diesel by one fourth to one half. Gasoline engines are approximately 16% heat efficient and diesel engines are close to 20% heat efficient. That means as much as 75% of potential energy is being lost. Heat that could be used to power your engine is being pumped out of your radiator and exhaust.
The technology is known as “emulsion fuels” It can convert your internal combustion engine into highbred internal combustion /steam engine. An emulsion fuel is a homogenized part water and part petroleum mixture. The petroleum ignites and the water absorbs the heat of the exploding gases turning it into steam doubling the force on the piston head by continuing to expand through the full stroke after the gases loose their pressure.
At present the EPA is giving final approval for this fuel as a way to reduce emissions by ¼ to ½, what’s not mentioned is that the emulsion fuel actually gets better mileage then present fuels and these emulsion fuels can contain more then 50% water under ideal circumstances. The demand for straight petroleum could be dramatically reduced and the price would come down, down, down. Check google for “emulsion fuels”
By Brian on Nov 21, 2007
What if someone designs a car that runs off of cow milk. That way everyone can cheer how the enviroment is now safe from harmful car emissions but what about all the people who realize that they are now paying even MORE to fillup their tanks?
Oh wait but then we start a new environmental crisis when someone realizes that the cow’s methane emissions are destroying the ozone layer. Sigh… guess we can’t win either way can we?
So ask yourself this… how can milk which comes out of a cow cost more than oil which has be pumped out the ground using multi million dollar oil wells, transported using multi million dollar super tankers, processed at mutli million dollar refineries and then transported using multi million dollar pipelines?
Hmmm…
By lawrence on Nov 20, 2007
I know for a fact, in 1976 general motors had half ton pickup that would get 50 miles to a gallon.Thats pulling a stock trailer.Until it was takin in for it’s first service,when it droped to 11 mpg.The service manager admited that there was an experimental carb on it.That they removed.
By Rippleyaliens on Nov 20, 2007
What makes no sense, is that, for 25+ years the US, has not created a new refinery. Made upgrades, yet, but no new ones.. $3.5 a gallon is HIGH, but not insane. What makes me angry, is that the economy as a whole, is impacted by this. From 1.25 a gallon to 3.5 is crazy, but that just makes me not do anything other than go to work/ stay home. Just picking up my kids cost me over $40. (pick up/ drop off). It hurts families just to do the normal thing in life. i can just imagine, business impact, desire to travel, more so, spending cash on other things. Our economy is the one that is / will suffer the most. Just to get to work
By Bill on Nov 20, 2007
I’m sadly amused at the people that complain about fuel costs. Want to point the finger? and give the finger? Point it at ourselves. Create a world built around driving a car, having to buy oil from other countries and what do you expect? They will suck us dry and cost us a fortune in wars to protect oil flow. Wake up…we are the problem. We are like Roman Empire…the world is changing and we want it to stay the same. It’s not the 1950’s.
Prices will drop when WE stop buying gas gulping vechicles. Until then, watch us decline as the greatest nation on earth… as we give all our money to the sand people.
By Thomas on Nov 20, 2007
Where did the $0.75 profit on $3 (25-33%) figure come from? Is that the drilling/pumping company the transporter, the crude seller or the refiner?
If the refiner buys crude at a price that equals $1/gallon of finished gasoline (since a gallon of crude does not yield a gallon of gasoline) and costs $1 to turn it into gasoline (running costs for the refinery, like electricity and payroll and the costs of additives), what would you say the profit is when they sell it for $2.25? To me that’s $0.25 but many “big oil” bashers would call it $1.25.
No one yet has been able to offer a number they think is reasonable for the markup at any level. Oil is the only place where people seam to forget that a small profit on a large sales volume is a big number. If the make 10% on $100B in revenue/sales, that’s $10B and everyone yells “Excessive profits”. But a company that make $100M on $250M in revenue/sales doesn’t seem top ruffle anyone’s feathers. (BTW that’s a 40% profit).
By Mike on Nov 19, 2007
Hubcap ,Rep John Dingall (Dem Mich currently has a bill in committee to levy an immediate 50 cent/gallon increase in the federal gasoline tax. This represents about a 250% increase. Another democrat sponsored bill wants a 10 cent/gallon increase annually for the next 10 years. Most of the opposition to it from other democrats is rooted in the belief that it isnt enough. Dingall also wants to elominate the mortgage deductions on homes over 3000 sq. ft. In a recent interview he made it clear that this is only the beginning. He has even considered Carbon use taxes. Wether or not you despise Bush this is what the democrats are going to give you.
By Hubcap on Nov 19, 2007
Mike says: “With the proposed huge fuel tax increases democrats are hoping for I predict 4$ to 5$ per gallon by the 2010 midterm elections.”
Excuse me, but it’s Bush and the Republicans who have overseen the near tripling of gas prices.
When Bush stole his way into the Oval Office, gas was a little over a buck a gallon.
Now we are 3 trillion in debt, mired in a untenable war and have given up a whole bunch of civil liberties.
But you want to blame the party that hasn’t been in power for seven years for some future tax increase.
By Mike on Nov 19, 2007
Political instabilities certainly do cause spikes in oil prices(and for that matter other commodities). It must be considered however that prices are a function of supply and demand. In the 70’s we experienced an artificial supply shock when the Arab producers shut off the spigot. I believe we are currently ,at least in part, experiencing a demand shock. As other economies grow,particularly India and China demand and consequently prices will continue to increase.With the proposed huge fuel tax increases democrats are hoping for I predict 4$ to 5$ per gallon by the 2010 midterm elections.
By Joe Q. on Nov 18, 2007
“In this together”??
We should learn how to combat such greed, in the 70’s many people downsized their vehicles and knew enough to conserve, today we a have the “whatever it costs” syndrome,
we don’t know how to say no or go without.
We have to have it and have it now, never mind our Grandchildren are the ones who are really going to pay for our stupidity! It’s
like cable TV, If everyone shut their TV off for just one week they would get you free tv within minutes……
By James Young on Nov 18, 2007
txblbnt: You’re confusing gross margin with profit AND omitting return on investment. The issue with international oil companies is that they are virtually autonomous, pay allegiance to no particular nation and enjoy more power than even some nations. Consider who has more economic power and influence in the world, Egypt or ExxonMobil?
By txblbnt on Nov 18, 2007
You state the oil companies make 75 cents to 1 dollar on the 3 dollars a gallon… that is not much compared to what the mark up is on retail. Anyone that owns a store uses ” keystone” meaning what ever you pay wholesale for your products for your store.. you double the price. ( and most add another 10 percent)
By george h on Nov 17, 2007
A big chunck of money goes to the IMF(International Monetary Fund). They are the middlemen. The oil nations get a couple of bucks/barrel, the IMF gets a ‘gozillion’ bucks/barrel, and then the oil companies refine it and make their profit on each gallon.
PS…Every politician that tried to investigate this scam was pushed out of office. Don’t expect any real answers.
By hubcap on Nov 13, 2007
Adam, the falling dollar is a very significant factor, however the political instability that the US has helped created and maintain in oil-producing regions is also very significant.
We’ve known for decades this is a problem and failed to do anything about it. Twenty or thirty years ago, anyone who advocated alternative energy sources or fuel-efficient vehicles was dismissed as an environmental whacko or merely anti-business.
Now we are seriously behind the energy eight ball and the US government shows no sign of even attempting to resolve the geo-political issues with anything other than bombs.
And as an aside, do you really think that Ron Paul will get the nomination? The CorpMedia has already anointed our choices and they will be Rudy “If you liked Bush, you’re gonna love me” Giuliani and Hillary “I’m not a liberal, but I play one on TV” Clinton.
My dream ticket is Gore/Paul. :)