Disecting gas prices

This interesting article by Rex Roy starts with the baseline look below at what lies beneath gas prices. He goes on to discuss many theories and myths about what drives gas prices. Worth a read.

Many factors contribute to the price of a gallon of gas. The good news is that, in general terms, the equation is simple. These are the four main components that determine the price you and I pay: Crude Oil + Refining Process + Retail Sales/Distribution + Taxes = Price These components, however, don’t contribute equally to the price at the pump. Here’s a look at each component and its role in the retail pump price: *Crude oil — 57% –Finding the crude oil –Getting the crude oil out of the ground –Transporting the crude oil to the refinery –Maintaining a reserve capacity of crude oil –Profit *Refining the crude oil into gasoline — 18% –Producing special blends of gasoline to meet local clean air government regulations –Transporting the gasoline to the gas station –Profit *Selling the gasoline at a station — 11% –Operational costs –Marketing costs –Profit *Taxes, federal and state — 20

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets.