Where Does Your Three Dollars Per Gallon Really Go?

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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