Oil Economics
Evan Danaher
Gary Shambat
Tim Lee
Annaliese Herring
When I Pay for Gas, Where
Does the Money Go?
In October 2002, the average retail price of
gasoline was $1.48 per gallon
$0.65 was the average price of crude oil
$0.42 was the average taxes, which vary
from state to state
$0.41 was the average manufacturing and
marketing costs, which includes the
refinery and dealer profit margin
Source: American Petroleum Institute, “How Much We Pay for Gasoline”
Petroleum Taxes
Taxes: local, state, and federal
Most of the money is recycled into
transportation needs
Total annual motor fuels tax bill for the
nation is nearly $72 billion
Figures
Gasoline:
Total tax paid is about 42 cents per gallon
Federal – 18.4 cents a gallon
State and local – average 23.6 cents a gallon
Diesel:
Total tax - 48.2 cents
Federal - 24.4 cents
State and local - 23.8 cents
Other Fuel Taxes
 Types of Fuels
Cents per gallon
(includes LUST tax)
Gasoline
Gasohol:
 10% gasohol
 7.7% gasohol
 5.7% gasohol
 Diesel fuel
 Diesel fuel for use in trains


18.4
13.1
14.319
15.379
24.4
4.4
Indirect Taxes
Federal:
Crude oil tax - $ 0.0525 cent per barrel for
crude under 25 API Gravity
Merchandise Processing Fee – 0.21% on
imports
Harbor Maintenance Fee - 0.125% value of
cargo
Leaking Underground Storage Tank Tax
0.1 cent per gallon to pay for leaks in
underground tanks
Indirect Taxes
Severance/production taxes
Conservative taxes
Property taxes
Sales and use taxes
Franchise taxes
Local taxes
Fairfax County
Gasoline
$0.175 per gallon
$0.06 per gallon tank storage fee
Diesel- $0.16 per gallon
Other counties have a lower local tax
Where Do the Profits Go?
Some profits go into exploration and
technological research, such as more
efficient fuels (Chevron Techron, for
example)
However, most monies going to drilling are
included in the cost of the crude oil, and
most monies included in transportation are
included in the refinery and dealer margins
Source: FCTR, www.consumerwatchdog.org
Who Makes More on Gasoline,
the Dealer or the Refinery?
The dealer is who you buy your gas from,
the local Exxon station or Joe Schmoe’s Gas
The refinery is the company producing the
gasoline from crude oil
The refinery has higher costs to produce the
gasoline, and also has a higher profit margin
Profit margins for the dealer and refinery are
different for branded and unbranded gasoline
Brand Name Gas
Branded gasoline costs on average the same
for the consumer as unbranded gasoline
The difference lies primarily in who makes
the more money of off the gasoline
Price Breakdowns in 1999 Gasoline Prices
(Costs per Gallon)
Branded
Unbranded
Crude Oil
$0.42
$0.42
Taxes
$0.46
$0.46
Refinery
$0.40
$0.36
Dealer
$0.08
$0.12
Total
$1.36
$1.36
Source: California Energy Commission, www.energy.ca.gov
Do Profits Vary Much Between
Smaller and Bigger Companies?
According to the Foundation for Taxpayer and
Consumer Rights (FCTR), the answer is
“Absolutely.”
The FCTR accuses the American oil industry of
being an “oligopoly,” controlled by the “Big
Five”:
ExxonMobil
BP Arco
Royal Dutch Shell
ChevronTexaco
Phillips Petroleum
Source: FCTR, www.consumerwatchdog.org
Oligopoly?
Crude prices are the same worldwide,
whether the oil comes from Alaska or Iraq
While many smaller companies may have
some business in drilling or selling petroleum
products to consumers, the great majority of
refineries and distribution methods are
controlled by one of the Big Five
Oligopoly?
Many foreign companies find it cheaper to sell
their crude oil to the Big Five to refine
The Big Five also share common distribution
centers for their petroleum products
How Does This Mean Big
Companies Get More Profit?
The FCTR contends that, since the Big Five
control American refineries, they can set the
refinery margins seen earlier to ensure they
get a healthy share of the profits
Furthermore, the FCTR contends that, since
the Big Five control American distribution,
they can force prices to spike because of
artificially created shortages
Do Environmentally Safer
Fuels Cost More to Produce?
In California, where the highly publicized
“CARB” blend of gasoline is legally mandated,
the refinery and manufacturing margin from
2000 to 2002 averaged $0.64 per gallon
In the Southeastern states, similar
reformulated fuels had refinery and
manufacturing margins of $0.38 per gallon
for the same period
The crude costs for CARB fuel were also less
then the crude costs for the SE fuels
Is Gas Getting More
Expensive?
Been to a gas pump lately?
Over the long term, however, gasoline has
been showing a decrease in price since 1918,
when it cost $3.00 a gallon (in 2002 dollars)
Gasoline prices are however (ironically)
extremely volatile, meaning they can
fluctuate rapidly, such as in the Oil Crisis in
the 1970s and more recently
Source: American Petroleum Institute, FTCR
Is Gas Getting More
Expensive?
In 1981, the average retail price of gasoline
(adjusted for inflation) was $2.69 a gallon
In October 2002, the average retail price of
gasoline was $1.48 a gallon
In May 2004, the average retail price of
gasoline was $1.70 - $1.80 a gallon
So, gasoline is still less expensive than it
was, but it is rapidly becoming more costly
Source: American Petroleum Institute, FTCR
Average Gas Prices Over Time
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Year (1918 -2004)
Why Is Gas Getting More
Expensive?
Crude prices have risen because OPEC
nations produced less petroleum than
predicted
American domestic crude sells for generally
the same amount as foreign crude
A recovering Asian economic sector has
meant increased purchases by Asian nations
Oil companies maintain their profit margins
on top of the rising cost of crude
Source: American Petroleum Institute, FTCR
Rising Oil Prices and the
Airline Industry
Airlines must pay rising prices
Hedging
Domestic flights surcharges
Examples: Southwest, Continental, British
Airways, Qantas
Rising Oil Prices and the
Trucking Industry
Bigger companies: surcharges
Smaller companies: competition
Example: Swift Transportation: West
Coast surcharge
Still hurting industry
Rising Oil Prices and Home
Heating and Cooling Costs
Seasonal
Mirrors
changes in
crude oil costs