Most of us are feeling the pinch right now when we go to fill up our tanks. The price of oil is fluxuating a lot these days which is why we are seeing the soaring prices at the pump. The average American is paying $0.85 more a gallon than they were this time last year a sacrifice most family just cannot afford to make.
To understand how and why gas prices jump we need to take a look at how gas prices are calculated. Now you may be paying $4 a gallon at the pump but that $4 you pay goes in a lot of different directions.
Calculating Gas Prices
For every $1 you pay in gas the breakdown goes something like this:
• Taxes: 15 cents
• Distribution and Marketing: 11 cents
• Refining: 7 cents
• Crude oil: 67 cents
The main thing you usually hear about effecting gas prices is the price of crude oil but the reality is that only accounts for about 70% of the overall equation. However it is the part of the equation that is most likely to yo-yo up and down and wreak havoc on your wallet.
Once the price has been set the gas is sold to your local service station where you buy it. Gas station owners make next to nothing on gas they tack a few pennies on to each gallon and hope their price point will be good enough to bring you in the door to buy sodas and chips and other higher margin items.
Why is Gas So High Now?
The gas/oil market can be a little tricky it is not based on supply and demand like many traditional markets are. The reality is the United States is not low on oil reserves at the moment. Most of the jumps in crude oil prices we are seeing are due to the unrest that has been going on recently in the Middle East.
Libya especially has affected the price of oil coming out of the Middle East. Libya produces what is called “sweet crude oil” which is much easier to refine for uses like gasoline. The unrest going on there has caused the market to pause and start reacting to what if scenarios which has surged the price of oil.
The news coming out of Libya also indicates that the oil companies are concerned about it as well as the investors. There have been reports that oil companies have tried to buy oil directly from the rebels instead of the state sponsored oil authority. The Libyan government in response to this stated last week that they would sue any company caught trying to buy oil from the rebels.
Gas Prices Ever Going Back Down?
The honest answer is no one knows which is why the market is so volatile and fluxuating all over the place. Currently the United Nations and NATO are working to try to quell some of the unrest in Libya which would certainly put some stability back into the oil market.
Even if that happened quickly though at this point summer gas prices are right around the corner. At this point though any relief Americans can feel at the pump would be welcome.