What makes up the price of a gallon of gas?

[EV_Ares]

So how exactly are gas prices set? What determines the hair-pulling figure you see displayed in large electronic or plastic numbers? Why is a gallon of gas, say, $4.11 — not $4.10 or $4.12? Why is the price different across the street?

It all starts with oil.

The biggest factor in the skyrocketing price of gasoline is the historic ascent of crude oil, which has surged from $45 per barrel in 2004 to more than $135 this past week, setting new record highs all the while. In the first quarter of this year, based on a retail price of gas that now seems like a steal — $3.11 a gallon — crude oil accounted for all but about a dollar, or 70%, of the cost, according to the federal government. The rest is a complex mix of factors, from the cost of turning oil into gas to taxes to marketing costs to, sometimes, nothing more than the competitive whims of your local gas station owner. Not that understanding the breakdown makes it any less cringe-inducing to fill 'er up.

How it all works. First a primer on how gas gets to your tank:

Once oil is pumped from the ground, it can be sold on the spot market, a last-minute trading arena where oil companies and distributors buy and sell to each other, or straight to refiners. After it's brewed into gasoline, the product can again be sold on the spot market, or directly to wholesalers, who in turn can supply their own stations or sell it to other retailers.

Each step of the way, buyers and sellers negotiate a price until, finally, drivers pay the ultimate tab at the pump.

At the starting point of all this is the price of oil — which, like the oil itself, is nothing if not crude.

Get the entire article & how it works @ the link: http://www.usatoday.com/money/industries/energy/2008-05-24-gas-breakdown_N.htm

[baldguy]

1. It goes mostly to pay for the profits of speculators in the oil markets.

[elifino]

2. Tax on gasoline by state

http://www.gaspricewatch.com/usgastaxes.asp

As the price of gasoline and diesel go up so do does the tax in some states.

[liberal N proud]

3. Other factors

Trying to blame the high price of gas on taxes.

Haven't we all been through this already?

[elifino]

5. Other factors

You are correct that the average cost increase in gas prices are not caused in total by taxes. It does explain some of the deference in price in different states.

[liberal N proud]

7. That really is the only effect it has

[Canuckistanian]

4. What I don't get

Is how the price can vary wildly at a single gas station from day to day.

I mean, it's the SAME GASOLINE AS YESTERDAY IN THE UNDERGROUND TANKS, yet the price we pay goes up?

And where does this extra profit go? Straight to the oil companies, it seems, because I don't see a lot of gas station owners suddenly becoming rich.

[muriel_volestrangler]

8. Competition, or the price they're told they'll pay for the next delivery

They'll set their prices partly by looking at what the stations around them charge - they'll know how competitive of price they need to keep, or if they think they've got regulars who won't get attracted by cheaper gas elsewhere. And if their supplier tells them the wholesale price is going up, they may decide to bite the bullet and be the first to increase the price to their customers in the area.

Very few retailers of anything base their prices solely on what the goods cost them. It's been like that for a few thousand years.

Yeah, in the end the extra profit has gone to oil companies and whoever owns the mineral rights, if their deal says they benefit from increased crude oil prices.

[ChazII]

6. And those wonderful

gas cocktails.... the special blends that some states have to have depending on the time of year.