Good Question: What makes up the price of a gallon gas?
MINNEAPOLIS — On the eve of Valentine's Day, here's news that sadly won't warm your heart. Gas prices have been creeping upwards, a trend that could pick up steam.
AAA reports the national average on Tuesday was $3.22/gallon. For Minnesota, it's $2.97. Both were at least 14 cents cheaper a month ago.
As the climb continues, we wanted to know: What makes up the price of a gallon of gas? Good question. Jeff Wagner found out what factors influence change the most.
From transporting refined fuel to international economics, the list on what impacts the price at the pump is a long one.
The Energy Information Administration boiled it down to four general categories. Crude oil is the biggest piece of the pie making up about 57% of the price of a gallon of gas as of 2022. Then comes refining and profits at 17.7%, followed by distribution and marketing at 12.4%, then federal and state taxes at 12.8%.
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But a multitude of variables can shift those percentages in different directions including the time year, location of the gas station, or something unpredictable.
"Explaining that effectively, it's almost like a tree. There's many different branches and it goes down into the trunk which is what we're paying at the pump," said Patrick De Haan, lead petroleum analyst for Gas Buddy.
What goes into the price of a gallon of gas? De Haan said it really comes down to the simple economics of how much gas drivers are needing and how much is in supply. "Supply and demand is constantly changing throughout the course of the year, even day to day. So, it's really those two main issues that really feed into what you're paying at the pump," said De Haan.
"What's the most volatile factor? What really causes gas prices to skyrocket is really the unknown occurring and us not knowing what the outcome could really be," said De Haan.
In the early days of the COVID-19 pandemic, the price per gallon tanked to around $2.00, even lower in some states.
When Russia invaded Ukraine, a swift shift in direction pushed it toward record highs that crossed the $5.00 mark in certain parts of the country.
One factor that has remained consistent for a while is the federal tax on gas. It has been $0.184 per gallon since 1993. It's when you cross state lines that variation happens.
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Minnesota's gas tax is $0.285, slightly less than Iowa ($0.30) and Wisconsin ($0.329).
The difference is likely not enough to really notice when paying.
But you'd definitely notice if you fill up in California or Illinois, where the state tax rate is more than double what Minnesotans pay. California's gas tax is $0.779 and Illinois' is $0.665. Visit a big metropolitan area in those states like Los Angeles and Chicago and your wallet will feel the pain even more.
"Property taxes are higher in a big city like Chicago versus the suburbs. That's a cost businesses have to recover through profits or their margins. The cost of labor is higher in the city," said De Haan.
The seasonal change will soon impact the price. It will rise as refineries switch to the summer blend of gas starting next month.
To learn more about what goes into the price of a gallon of gas, click here. (https://www.eia.gov/energyexplained/gasoline/factors-affecting-gasoline-prices.php)
