Who is really in control of setting gas prices
November 27, 2008 – 8:52 pmPoliticians get blamed for high gas prices. Gas companies get blamed for high gas prices. OPEC gets blamed for high gas prices. Who is really in control of setting gas prices?
There are several determining factors for the price of gasoline. Let’s take a look
Suppy and Demand
The basic principles of supply and demand directly affects the price of gasoline. There is not an unlimited supply of crude oil on the earth. In other words, there is a limited supply of gasoline. There are also constant changes in gasoline demand. For instance, there was less demand for gasoline when it was $4 per gallon. Supply and demand contribute a great deal to the price of gasoline.
The average retail price of gasoline between 2000 and 2007 was $1.91 per gallon. Forty-eight percent of this price was directly affected by the price of crude oil. Twenty-four percent of the price of gas was due to federal and state taxes. Sixteen percent was affected by refining costs and profits. The remaining twelve percent was due to distribution costs and marketing costs.
Inflation also affects the price of gasoline. By definition, inflation is the rate at which the price of a good or service increases. For an item that cost $1 in 1950 would cost $8.58 in 2008. By taking inflation into consideration, the price of fuel should cost about $2.64 per gallon in 2008.
There isn’t one person or one organization that controls the price of fuel. There are several determining contributors to the price of fuel. Two of the biggest price determinants of fuel is supply and demand. Other factors include: the price of crude oil, taxes from the federal government and governements on the State-level, refining costs, profits, distribution costs and marketing costs.