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Gas Prices (Part 2): Break up of Gas Prices

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When you are paying $30 for the gas that is pumped into your tank then you are not just paying the pump station but you are paying to all those entities that have made this gas available for you. Means the money that you are paying is distributed among several groups which are linked together in the supply chain of gas. The media can sometimes make you to believe that the price of crude oil is the only factor that determines the gas prices, but this is not true as there are many factors that determine the gas prices in a country. All of these entities have to get their due share, no matter how expensive the gas may be.

oil_rig

According to the U.S. department of energy here we have given an approximation of distribution of each dollar you spend on gas: gaspump

  1. For Taxes: 21 cents

  2. For Distribution and Marketing: 15 cents

  3. For Refining: 17 cent

  4. For Crude oil: 47 cents

    (Source: DOE)

    This was the average breakdown of gas prices as in Feb 2009.

    Let me explain you these components in some more detail.

    Amount spent on purchase of Crude oil – The biggest portion of the gas price goes to the crude-oil suppliers. The world’s oil-exporting nations, particularly the Organization of the Petroleum Exporting Countries (OPEC) determine them. The amount of crude oil produced by these countries determines the price of a barrel of oil. In 2004, crude-oil prices were almost around $35 per barrel (1 barrel = 42 gallons or 158.99 L). And, after Hurricane Katrina, some of the prices were doubled. In April 2008, crude-oil prices were almost around $104.74 per barrel. During the same month, the price of oil leads to a record price of almost $120 a barrel (Source: DOE).

    Till May 16, prices had reached $117 per barrel (Source: Market Watch). On May 22, $135 per barrel price was reported in the markets in New York and London, and on July 11, oil hit the highest ever recorded price of $147 (source: Forbes, New York Sun). Analysts guessed that the increasing demand from countries like India and China has contributed to such a huge rise in price.

    Sometimes the gas prices rises even when there is plenty of crude oil in the market. It depends on kind of oil available in market, either heavy or light and sweet or sour ,well these are the names given to different kinds of oil on the basis of there qualities. Light, sweet crude is easier and cheaper to refine, but its supplies are short. On the other hand the heavy, sour crude oil is abundant but its refining is very costly.

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