What's Up with U.S. Gasoline Prices?

April 2010 Update

Although current retail gasoline prices are well below the levels of almost two years ago in the summer of 2008, gasoline prices have been increasing over the past few weeks, along with possible early signs of economic recovery in the U.S. and abroad.

As the summer driving season begins, economic concerns continue to weigh on consumer spending decisions and high unemployment is expected to moderate driving and fuel demand. However, gasoline demand in the U.S. is strengthening and the Energy Information Agency does expect a modest increase in driving and gasoline consumption this year (up less than one percent versus 2009).

As people make vacation and driving plans, the following facts should help improve understanding of what's behind U.S. gasoline price movements:

• Gasoline prices are impacted by a number of factors, but the global price of crude oil is the primary determinant of the price at the pump. Most recently, rising crude oil prices are reflecting global demand from a recovering world economy. The chart below clearly shows the very close tracking between the prices of crude and gasoline over the past 10 years.
  

• Prices for crude oil are set in worldwide markets comprised of many buyers and sellers reacting to the economic fundamentals and perceptions of supply and demand. ExxonMobil is a net-buyer of crude oil and in 2009, refined about 5.4 million barrels per day -- more than twice the company’s daily crude production.
  
• Other factors such as geopolitical risk, currency fluctuations, government regulations, directly affect the price at the pump. Taxes are also a considerable factor and, on average, combined state and federal taxes add about 48 cents per gallon to the price at the pump. In states like New York, Hawaii, and California these combined taxes exceed 60 cents per gallon.

So, looking at the components of the price for gasoline, on average, about 80 percent to 85 percent of the cost of a gallon of gasoline is based on the price of crude oil and taxes. The remaining portion of the price, about 15 percent to 20 percent, covers the cost of refining, transportation and marketing. The chart below depicts the components of retail gasoline prices based on latest available data from the Department of Energy.