Why is it that gas cost $2.99 a gallon if for a barrel gas companies pay $70 for 42 gallons..?

Question

To me that math doesn't add up. I understand that companies take a loss when transporting the gas.. but it doesn't make sense.

Answer 1

First there is the oil, which you've correctly identified as $70/bbl, or 42 gallons. This equals $1.66.
But oil doesn't flow straight from the ground to your gas tank. First it has to be transported. You have to pay to move it from the wellhead to the terminal then on a VLCC (very large crude carrier) across the atlantic to a terminal in the US, where it is transported to a refinery.
So after paying the midstream (pipes and tanker) costs, you have to pay the downstream (refining) costs to crack the crude into different hydrocarbon molecules. Once this is done, transport the gas to the filling station (have to pay more transportation costs). Now the filling station gets a piece of the action, which is nothing compared to the biggest add-on cost that we haven't mentioned yet: the gas tax!

The link below breaks it down for you.

Answer 2

If crude dropped to $35 a barrel, gas prices wouldn't drop to $1.50 a gallon - the actual raw material cost is only a portion of the equation.


Only 40% of most crude oil can be refined efficiently into gasoline, couple that with distribution and government mandated additives (half of which do nothing for modern cars except lower fuel economy - remember MTBE, first mandated for environmental reasons then banned for environmental reasons) add taxes all the way to the pump (taxes on the taker ships, the storage facilities, the refineries, the storage facilities again, the distribution pipeline, the storage facilities again, the trucking companies, the gas station).

Answer 3

First off, I’m not saying there isn’t some cheating going on and some dishonest accounting. I’m quite sure there is some of that, but here is the main argument as to where the costs come from:

1) Cost of transporting the crude oil to the Refinery where they make the gasoline.

2) Surprise, surprise, 100% of a barrel of oil does not convert to gasoline! Depending on the crude oil type – Saudi Light Crude Oil has a pretty high conversion rate, Mexican Heavy Crude Oil is very low – maybe as low as 5%! The rest of that barrel of oil that can not be made into gasoline is made into lower value products – like asphalt!

3) It takes a great deal of energy to refine the oil into gasoline, diesel, motor oil, grease, etc. Sometimes up to 20% of that barrel of oil is burned to heat and process the rest of the oil.

4) Cost of transporting the Gasoline to your filling station.

5) Middlemen take a markup at various points depending on your brand and marketing system.= Some cost

P.S. – We pay $3.40 + per gallon here in California!

Answer 4

Oil needs to be refined to make gasoline and that does cost something. However, the primary reason is that it is a matter of supply and demand. Oil companies have deliberately not built new refineries for a very long time and as a result there is just barely enough refining capacity to meet our fuel demands. That results in a tight supply of gasoline. People then bid against each other to buy that gas so that they can sell it to us. That drives up the price of gas and therefore the price we pay. If we were to stop buying gas when the price when up then the price would drop right back down, but we just keep buying it because most of us have no choice. If you really want to see cheaper gasoline sell your gas guzzler and buy a Prius. If enough people do that the demand for gas will fall and the prices will follow.

Answer 5

If you mean 42 gallons of oil, ie a barrel of oil, part of the cost is refining the oil into gasoline. You aren't going to get 42 gallons of gas out of 42 gallons of oil, even with the purest oil on earth. Some of what makes up the oil is ultimately discarded.

Then you have special additives that governments require be added to cut down on polution. These additives can be costly.

Then there is just the pure profit and market manipulation issue.

Answer 6

A barrel is 55 gallons, its crude oil that needs refined, you cant refine 55 gallons of oil and get 100 gallons of gas. The price is because of Market manipulations, it doesn't cost much more today than it did 20 years ago to pump oil from the ground, we are all being screwed. Thank you George Bush

Answer 7

The companies do not pay $70 for 42 gallons of gasoline, they pay $70 for 42 gallons of CRUDE OIL. The extra cost comes from making gasoline out of the crude oil. Have you ever been in, or close to, an oil refinery? They are giant, expensive looking industrial plants. My uncle works at one.

Answer 8

Well, the companies need to pay to refine the oil into gasoline. Also, there is an 18-cent federal excise tax on every gallon of gas in addition to a 20-cent state tax, depending on your state. Look at a gas pump and you will find the exact numbers you're paying in gas excise taxes.

Answer 9

Crude oil is $70 a barrel, and you don't put crude oil in your tank. Only about half the oil can be refined into gasoline, and it's expensive to do so and transport. Add on markups & taxes, and $3/gallon is hardly surprising.

Answer 10

Lite sweet crude oil is what cost 70 a barrel,it has to be refined into gasoline.The price is a reflection of the principle of supply and demand.