What goes into the cost of a gallon of gas?

May 31, 2008
I happened to come upon this piece of information from D.R. Barton, a financial columnist, on the cost components of gasoline. It makes interesting reading. ---------------------------------------- What is the breakdown in the cost of a gallon of ...

I happened to come upon this piece of information from D.R. Barton, a financial columnist, on the cost components of gasoline. It makes interesting reading.

----------------------------------------

What is the breakdown in the cost of a gallon of gasoline? Based on several sources, here are the best ranges I could find:

• Tax per gallon (U.S. Only): 18.4 cent Federal excise tax, plus, an average of 27 cents of state taxes (including sales and environmental taxes).

• Refining costs: ranging in estimates from 8% up to 22%.

• Transportation, storage & marketing: about 4.5% to 8%.

• Cost of crude oil: at $3.80 per gallon – 72% or $2.74.

These numbers come from a combination of resources including the U.S. Department of Energy, the U.S. Energy Information Administration, and articles from the Washington Post, Wall Street Journal and CNN.com.

I provided these numbers because the number one question I've been asked by folks when discussing the article is, “What goes into the price of a gallon of gas?”

Interestingly, in 2006, with gas at an average of $2.43 per gallon, taxes made up almost 19% of the cost; now it's down to “only” 12%. Clearly the price of crude oil is dominating the cost right now, but that's not always the case. As we found out when Katrina shut down key refining plants on the Gulf coast, refining, distribution and storage costs can fluctuate based on supply and demand.

But despite high historic prices in the U.S, prices here remain relatively low compared to other countries around the world. Many oil producing countries subsidize gas prices, so countries like Venezuela, Nigeria, and most states in the Middle East have prices well below the cost of production (to stimulate economic growth and gain political favor). On the other end of the scale, most European countries have heavy gas taxes; the average price for a gallon of petrol in the UK is now $8.56 and in many Scandinavian countries, it's north of $9.00 per gallon.

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