Sometimes it’s availability, other times it’s trade price, but the things that actually determine gas prices are sometimes invisible to the everyday person. Over the last decade, prices have skyrocketed and left most of us begrudgingly emptying out our wallets for a full tank of gas while we remember the good ol’ days where gas wasn’t such a financial burden. But what has made these prices go up? What factors are considered when determining gas prices?
What Goes into the Price?
Let’s take a look at what you’re actually paying for per gallon. The price per gallon is divided into separate buckets: price for crude oil, for taxes, for refining, and for marketing and distribution.
According to the U.S. Department of Energy, the price for crude oil in 2011 averaged at 68% of the overall per-gallon price, which is drastically more than in 2000, where it averaged at 48%. It’s on a steady increase, but that’s mainly due to the fact that crude oil is a non-renewable resource. So, in other terms, gas prices are only going to keep rising until we find another fuel source.
Blame Inflation and Taxation
A lot of people mistakenly shake their fists at greedy oil mongers or supply and demand. But inflation, the general rate at which prices of goods and services rise, is the reason why things cost more now than in the 1950s—something worth $1.00 in the ‘50s would now be worth $9.30 today. We can apply this same conversion to gas prices. Making an adjustment with inflation, we find that a gallon of gas in the ‘50s that cost about $0.30 would cost $2.79 in 2010. That’s actually pretty accurate, if you recall.
Taxes have also made a huge hike. Looking at 1950 and 2010 again, we see a dramatic increase in taxation. While the inflation was at a steady climb, so were the state and federal taxes. In 1950, taxes accounted for only 1.5% of the overall per-gallon price. In 2010, that number jumped to 20%. With fluctuation of the price of crude oil—this is where supply and demand comes into play—taxes either increase or decrease. In 2011, taxes only accounted for 11% of the overall price. Because the price of crude oil went up, the federal, state, and local governments actually lowered taxes.
Sorry to say, location has a lot to do with it as well. Your distance from or proximity to the gasoline supply will affect gasoline prices. Along with that, those who live in cities typically pay more for gas, but that’s because of inflation in those cities. Cost of living is different everywhere, but it’s usually always higher in cities. This is why you’ll find higher prices in downtown Indianapolis than you will 30 minutes outside of the city.
Save on Gas Now
Unfortunately right now, gas prices are pretty high in Indiana, and it doesn’t look like they’ll be going down anytime soon. Thankfully, now there are more hybrid, electric, and fuel-efficient cars available, and Hubler’s got them. Check out our long list of hybrid and electric cars today! With great financing options, it might be a better financial decision to get a new car and save on gas.