The Oil Industry and the Factors that influence Oil Prices – Chapter 8: The Components of Gasoline’s Retail Price

This is chapter number 8 out of 10. Read the rest:

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 1: History of the Oil Industry
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 2: Oil Prices Determinants
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 3: The Sentiment of the Market
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 4: The Origin of Oil and its Composition
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 5: The Drilling & Production of Oil
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 6: Comprehending Price Fluctuations
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 7: The Supply of Crude Oil and Its Prices

Crude oil prices as a component of gasoline’s retail price changes over time and is different for different parts of the country. In 2005, crude oil price represented 53% of the average gasoline retail price which petroleum was $50 per barrel. However, in 2007, when oil price jumped to $69 per barrel, the cost of crude oil accounted for nearly 58% of the retail price of gasoline. This variation over time is also reflected from year 2000 to 2007 when the average price of petroleum was $39 per barrel. Then, crude oil cost represented 48% of the retail price of gasoline.

Government taxes, be it Federal, State or Local Government, also represent a major share of gasoline’s retail prices. Since 2000 to 2007, government taxes comprises of an average of 24% of gasoline’s retail prices. Federal and state taxes in 2007, accounted for around 15% of one gallon of regular gasoline. State taxes were 21.5 cents per gallon while Federal taxes were 18.4 cents per gallon. Eleven other states in theUSalso imposed additional taxes to add onto the cost of gasoline per gallon.

However, while every other cost is going up, distribution, marketing and retailers profit margin are coming down. From 2000 to 2007, these cost represented 12% of the cost of gasoline’s retail prices. Nowadays, they amount to only around 10%, a decrease of 2%. This is due to the fact that most gasoline is transported by pipeline from the refineries to the depots. From the depots only then are they delivered by tankers to the gas stations.

Thus, anything which affects the refining capacities of the oil industries will have an effect on the retail price of gasoline even if the supply of crude oil is stable. This was the case when Hurricane Ike, and Hurricane Katrina struck the coast of the US.

Most of the world’s petroleum products are consumed by countries in the northern hemisphere. It is for this reason that the demand for oil is seasonal as it is subjected to the weather of the northern hemisphere countries. This demand is also subjected to the health of the economies in the northern hemisphere. Better economic conditions mean more money to spend and thus more demand.

Although there are many factors which determine the price of oil, the critical factor actually comes from the supply side. Many countries have their own oil fields but however only a few regions possess oil fields which are economical. Because of the concentration of economical oil fields in theMiddle East, this means that oil prices are greatly influenced by the political stability of that region and that of OPEC.

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 9: When Supply and Demand isn’t the answer
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 10: Conclusion