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Why is Gasoline Not Declining in Price?

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Why is Gasoline Not Declining in Price?

Aug 17 2015, 10.39am GMT


The question as to why gasoline prices are not declining is a multifaceted one that requires a similar answer. Chief amongst these answers are that there are certain fixed costs that make up the pump price of fuel for your car.

According to the U.S. Energy Information Administration (EIA), the pump cost of gas comprises taxes of 16%, a refining cost of 21% and distribution and marketing charges of 11% while the actual crude oil makes up for 49% of the cost.

A major factor affecting the price is that the excise taxes are not calculated on the monetary value, but rather on the quantity with Federal tax standing at 18.4 cents per gallon and an average all states tax of 24.12 cents per gallon as of July 1, 2014.

The actual cost of the crude thus makes up only 49% of the pump cost of gasoline thereby reducing the potential for lower oil prices to impact on the pump price of the refined product.

According to Gasbuddy.com who survey gas prices across the U.S., the median price for gasoline in the country stood at $2.559 per gallon. While this figure is up 6 cents from a week earlier, it is still 14 cents a gallon lower than it was a month ago. According to news reports, fuel prices rose above $5.00 per gallon in California earlier last week.

Meanwhile, gasoline futures (RBU5, -.65%) rose by almost 4% last week to record their biggest weekly increase since mid-June.

Part of the reason for the increase in pump prices has been laid at the door of the outage at the BP PLC (BP, -0.42% BP., -0.74%) refinery plant at Whiting, Indiana which came at an inopportune time, further aggravating the spike in gas prices.

Adding to the cost as well as delaying production which alters the supply-demand ratio is the fact that gasoline supplied in metropolitan areas in the summertime must be a reformulated blend. This particular problem will of course disappear after 15 September.

The U.S. has enjoyed a summer driving season for the first time in a number of years as the lower fuel price made more leisure activity in distant localities more attainable.

The current oil price range suggests that pump prices of gasoline should be staying at present levels unless there is a significant change in the OPEC production policy.

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