Gasoline Prices Explained

Gasoline prices fell as crude oil stock surged by nearly 6 million barrels in the first week of this year’s last quarter. The commodity’s cooling sentiments stem from China’s interest rate cut, leading to declining crude oil imports. Additionally, the gaining ethanol market in Brazil will largely contribute to the decreasing demand for gasoline as the country pushes for more sustainable fuel consumption.

Why are gasoline prices fluctuating?

1. Crude Oil Prices

Crude oil is the most determining factor of gasoline prices as it is the main component of making gasoline fuel. Thus, an increase or decrease in crude oil supply and prices can completely change the gasoline market value globally.

2. Gasoline Taxes

Federal, state, and local government taxes get a hold of gasoline prices as well. In the U.S., state taxes and gasoline fees per gallon are an average of 31.67 cents. Generally, this is quite big for retailers, which in turn, pass the burden to consumers by increasing the product price to compensate for the cost.

3. Refining Costs

Gasoline undergoes a series of refining processes before it reaches consumers. For example, refining costs account for the type of crude oil used, the processing technology available at the refinery, and the gasoline requirement of a specific importing country. Overall, these costs add 14% to the total gasoline price globally.

4. Distribution and Marketing

Gasoline is shipped from refineries by pipelines to terminals. Next, market and government evaluation for standard requirements. Gas stations then distribute and sell gasoline to local customers. Overall, this tedious process takes time, labor, and resources. Therefore, distribution, and marketing prices all add up to the retail market value.

Which variables impact the price of gasoline?

• Crude Oil Prices
• Gasoline Taxes
• Refining Costs
• Distribution and Marketing
• Geopolitical Events

Where does gasoline come from?

Generally, gasoline comes from an extracted crude oil heated through fractional distillation. To increase the octane rating,  gasoline undergoes a series of processes to remove impurities. It was discovered 160 years ago but was given not much attention until the early 1890s.

Additionally, the development of the Mobile T automobile by Henry Ford, and the establishment of gasoline production and filling stations in 1905 marked the start of gasoline trading which ultimately made way for major global oil businesses such as Shell, Chevron, and Exxon Mobil Corp.

The three main grades of gasoline are regular, midgrade, and premium. 

Generally, gasoline stations have different names for these grades according to their octane rating. Octane rating is an antiknock gasoline property that resists knocking or pinging during engine combustion. Today, the top gasoline producers in the world are the United States, Russia, Iran, China, Qatar, and Canada.

What is the future price of gasoline?

Gasoline prices rest at low levels due to healthy production because of growing refinery capacity. The new refineries in the Middle East (particularly in Kuwait) increased its pool of gasoline and diesel on world markets.  Also, the increasing demand for hydrous ethanol in Brazil, particularly in flex-fuel vehicle consumers will affect gasoline prices.

However, the U.S. continued economic growth will spur modest gasoline and diesel consumption growth. Additionally, the increasing jet fuel demands due to the shifting usage of larger aircraft in the country will likely drive up its prices.

Overall, these present varying factors, coupled with the gaining biofuel consumption determine its marketability. Experts predict that gasoline prices will be around $3.50 per gallon in 2030.