Costs and Profit Margins
To produce 1 gallon of gasoline, the cost of the raw crude oil typically ranges between $1.19-$1.67 per gallon. Excise taxes add about 49 cents per gallon on average. Additional costs come from refining, transportation, and retail sale. A 42-gallon barrel of crude oil yields 19-20 gallons of gasoline after the refining process. So the commodity price of crude oil directly impacts the retail cost of gasoline.
Retailers make very little actual profit selling gasoline. The gross profit is around 15 cents per gallon before expenses. After overhead costs, the net profit comes to about 2 cents per gallon.
The largest component of gasoline prices is the global commodity price of crude oil. This benchmark price ranged from $50-$70 per barrel recently. Local factors like taxes, regulations, and transportation costs also contribute to retail gasoline prices.
Keeping an eye on world events, refining capacity, alternatives, and fuel efficiency can provide context on price swings. While gas prices may seem fixed day-to-day, many complex, interconnected factors influence the stability of our transportation fuel supply.
Gasoline Production and Distribution Economics
The cost to refine gasoline varies between 40 cents and 70 cents per gallon, depending on various factors. The cost to transport the refined oil to service stations runs about 27 cents per gallon. Taxes vary by state.
The gross margin (or markup) on gasoline in 2018 was 23.8 cents per gallon, or 8.7% of the average price of $2.72 for that year. Over the past five years, retailer gross margins have averaged 21.6 cents per gallon, or 8.5% of the overall price.
In conclusion, determining how much a gas station makes per gallon involves analyzing various factors, including profit margins, volume sales, fuel quality, pricing strategies, location, competition, customer behavior, and ancillary services. By understanding the economics of gas stations and carefully managing these factors, gas station owners can optimize revenue, enhance profitability, and secure long-term success in the dynamic fuel industry.
The Hidden and International Costs of Gasoline
Other countries, working to bear the cost of gasoline use, enact "eco taxes" to direct funding toward social programs and renewable energy. Germany, for example, charges about $1 per gallon as an eco tax in order to fund these programs. Germans pay more than $8 a gallon for gasoline and in Netherlands, gasoline is close to $9.
According to the National Defense Council Foundation, the economic penalties of America’s oil dependence total $297.2 to $304.9 billion annually. If reflected at the gasoline pump, these “hidden costs” would raise the price of a gallon of gasoline to over $5.28.
In Utah, Daggett County has the highest average price per gallon at $4.10. Yet a gallon of gas weighs a mere six pounds and, on average in the U.S., costs just $2 to $3 — less than a gallon of milk.
The cost of gasoline is influenced by a complex interplay of factors, including crude oil prices, taxes, and supply and demand dynamics. Understanding these components can help consumers anticipate fluctuations in gas prices.