The price of fuel

CRUDE OIL


Like agricultural products, such as wheat and corn, and precious metals, such as silver and gold, crude oil is traded on the world market. Recently, crude oil prices have risen dramatically, driven by rising global demand and political instability in several oil producing countries.
Crude oil prices are important in determining gasoline prices because crude is the primary raw material used to produce gasoline and other petroleum products. In some cases, the price of crude oil may account for up to half the price of a gallon of gasoline.
Example:
There are 42 gallons of oil in each barrel of oil. If the price of crude oil is $75 a barrel, the cost of the raw material required to produce a gallon of gasoline is $1.78. This figure does not include costs incurred to transport crude oil to a refinery, refine the oil into gasoline, transport the gasoline to distribution hubs or wholesalers, deliver the gasoline to retail locations or operate service stations.

GASOLINE


While crude oil is traded in a global market, gasoline is part of a regional market. Crude oil prices are important in determining gasoline prices because crude is the primary raw material used to produce gasoline. The price of crude oil may account for over half the price of a gallon of gasoline.
Transitions in supply can also affect the short-term availability of gasoline. Going into the peak summer driving season, refineries are adjusting their gasoline formulas to help protect the air quality in warmer weather. And, because of changes to federal energy legislation passed in 2007, many states are switching to ethanol-blended gasoline.
Many states require specific formulations of gasoline — there are currently 18 separate gasoline formulas for different regions of the country-and it is often difficult to import gasoline supplies from one region to another.
Each gallon of gasoline also is subject to numerous taxes and fees, which vary by state. In California, the price of gasoline includes a federal motor fuel excise tax, a California motor fuel excise tax, state and local sales taxes as well as other state and local fees totaling more than 58 cents a gallon.
After the crude oil is processed through the refinery, the finished gasoline product is transported to a terminal, where it may be sold to a wholesaler for distribution to the wholesaler's retail network or delivered to the retail location. There the retailer sets the "street price," which includes a margin to account for the retailer's cost of doing business at that particular location and the retailer's profit.

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