NEW YORK (MainStreet)A myriad of factors contribute to the cost of gasoline, which is why consumers see price fluctuations when they go to different pumps or pay less when they travel to other states. And as people get ready to hit the road for July 4 getaways, they're ever eager to know how badly they're going to get dinged at the gas station.
Gasoline is derived from crude oil, which affects 63% of the cost. Crude oil prices fluctuate often from issues arising from supply and demand by the sellers and buyers in the market and political turmoil, said David Zahn, vice president of marketing for FuelQuest, a Houston-based software company that manages supply chain for suppliers and purchasers of fuel such as FedEx and UPS.
The cost to refine crude oil or to produce it into gasoline contributes another 16% while distribution, marketing and retailing make up another 10%.
The proximity to where the refineries are located also factors into the price, said Brian Milne, energy editor and product manager for Schneider Electric. The cost decreases when consumers live closer to refineries, because there is more availability and transportation costs are lower, he said.
The remaining 11% is derived from federal and state taxes. The current federal tax rate is 18.4 cents per gallon. Since each state determines its own tax rate, the retail price can vary widely. The average rate is 23.5 cents currently, said Zahn. In California, consumers pay 48.7 cents in taxes for gasoline, while residents in Alaska pay only 8 cents, he said.
Some states such as California are also required to sell a fuel type that has greater environmental restrictions due to pollution issues, said Milne. The stricter environmental regulations can ramp up the cost of manufacturing gasoline in those states.