Introduction
This paper provides an analysis of current gasoline (Gas) prices. The study also gives reasons for why gas prices are so high, types of gas available, and regions where gas is produced.
Gas Prices in Different Countries
According to a report by CNN, Gas prices vary across different countries. Some countries, such as Saudi Arabia, Venezuela, and others that have vast deposits of crude oil, keep the local Gas prices low so that their people are benefited. In Saudi Arabia, the cost of regular Gas per gallon is 0.091 USD, while in Venezuela, it is 0.012 USD per gallon. Netherlands has the highest price of 6.48 USD per gallon (CNN Money, 2007).
Table 1. Gas Prices in different countries (CNN Money, 2007)
In America, there is a wide disparity between gas prices across different states and regions within the state. In San Francisco, the gas prices vary between 3.60 to 3.70 USD per gallon, while in New York, the prices are between 2.70 to 2.80 USD per gallon. The average gas price in the US is placed at 3.061 USD per gallon. (USA Gas Prices, 2007).
Table 2. Ten States with the Lowest Prices (Gas Buddy, 2007)
Break up of Gas Prices to Consumers
There are three grades of gas available, and they are premium, mid-grade and regular, and these are classified as per the Octane content. The prices of gas vary even by gas stations in the same block. This is due to the procurement and taxes that are levied at different levels. Other reasons are the competition levels, traffic patterns, rentals, real estate value, and other factors. While there is no harm if the gas stations bring down the prices to a very low level, they cannot go lower beyond a limit since this would affect their profitability. There are a number of taxes and other pricing structures that influence the price of gas. Gas is produced from crude oil, which is refined to produce the product used in automobiles. Assuming that a gallon of gas costs 1USD, then the price of crude is 53 cents or 53 percent of the total cost. Federal and state taxes add about 19 cents or 19 percent to the cost. Next, there are refining costs and profits, and these add another 19 cents off 19 percent. Next comes the distribution and marketing costs that add about 9 cents or 9 percent of the costs. The total is then 1 USD. It can be seen that the value-added costs are almost as much as the cost of the raw product. This is one of the reasons why gas prices are so high. Ultimately, the price of gas at the pump is determined by the price of crude oil, federal and state taxes, costs of transporting in trucks and pipelines, and the desire of the owner to maximize the profits. The actual price will depend on where the pump is located if there are any other gas stations nearby, and so on (Primer on Gasoline Prices, 2007).
Reasons for Gas Price Fluctuations
The reason for Gas price variation is based on a number of political, economic, and financial factors. The world’s largest producer of crude oil is Saudi Arabia and the OPEC (Organization of Petroleum Exporting Countries), Nigeria, and Venezuela. There are other countries such as the USA, India, and others, but the volume of oil produced is not sufficient to meet their own demands. So, in effect, the price of Crude oil is set by Saudi Arabia and OPEC. There have been many instances where these countries produce less oil so that the demand for crude oil goes up, and consequently, the price of gas rises. In some instances, these countries maintain a steady rate of crude production so that the rates remain stable (Gismatullin Eduard, June 11, 2007).
In addition, the prices vary due to seasonal demands and other reasons such as the distance from the supply points, possible disruptions in the supply, a disaster such as a hurricane Katrina, competition among the gas stations that may bring down the gas prices by a few cents and so on. Some states have special environmental regulations about the additives used in gas. State regulations require that Gas must produce lesser carbon monoxide and sulphur, must be oxygenated, must evaporate more slowly, and so on. These add to the cost of the gas (Why do gasoline prices differ according to the region? 2007).
Another factor for variations in gas prices is the quality of crude oil. The amount of processing and the by-products of the crude oil vary from region to region. Crude oil produced in America is a light quality oil that can be refined with a simple refining process. The crude oil obtained from Saudi Arabia has high sulphur and other content that requires special processes (Crude Oil Quality, 2007).
About OPEC
OPEC or the Organization of Petroleum Exporting Countries include a number of countries such as Saudi Arabia, Iran, Algeria, Iraq, Indonesia, Venezuela. Kuwait, Nigeria, Libya, Qatar, and the United Arab Emirates. These countries control the output of crude oil, and the current prices are 65.40 USD per barrel. The countries have an understanding of the rest of the world and have agreed to produce 1.7 million barrels per day. A price rise of just a few cents can create a huge burden on other countries since they buy millions of barrels. Recent incidents in Nigeria where militants have attacked the oil production centers have reduced the supply of crude oil by as much as 600,000 barrels per day, and this has made the crude oil price rise to 69.06 USD per barrel (OPEC, 2007).
References
- CNN Money, 2007, Gas prices around the world. Web.
- Crude Oil Quality, 2007, Refining of Crude Oil. Web.
- Gismatullin Eduard, 2007, Oil Rises as Saudi Arabia Maintains Supply Restrictions to Asia. Web.
- Gas Buddy, 2007, Gas Prices by State/Province: 10 Lowest By State. Web.
- OPEC, 2007, OPEC Price Band.
- Primer on Gasoline Prices, 2007, What are the components of the retail price of gasoline. Web.
- USA Gas Prices, 2007, USA National Gas Temperature Map. Web.
- Why do gasoline prices differ according to region? 2007. Web.