What we pay for when we pay for a gallon of gas

(Image credit: Illustrated | iStock)

published 21 June 2022

Gas prices are high — all-time highs nominally, and even approaching modern records adjusted for inflation.

When you buy gas — or at least when you bought gas in April — 60 percent of your money goes toward crude oil, the U.S. Energy Information Administration (EIA) says. The rest goes toward refining (17 percent), distribution and marketing (11 percent), and state and federal taxes (12 percent). So at $5 a gallon, $3 of your gas money goes to the company drilling or mining the crude oil. "On average, gas stations make about 5 cents per gallon of gas sold," WUSA9 reports.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

In May 2017, when the average price of gas was $2.39 a gallon, the Energy Department said crude oil made up only 48 percent of the price of a gallon of regular gas. In April 2020, oil was 52 percent of your gas dollar, and it was "just 25 percent in April 2020 — when the pandemic sapped demand for fuel, along with most other goods and commodities," The New York Times reports. "For a brief moment in 2020, the cost of a barrel of oil fell below zero because storage tanks were full from the lack of demand."

The U.S. is the world's top producer of oil and processed petroleum products, a major exporter of crude, and the second-largest oil importer after China, the Times reports. "That's partly because American refineries are often set up to process types of oil that are different from those produced in the United States. It would be expensive and difficult to reconfigure refineries to process more U.S. oil, which is why the United States is likely to continue importing large quantities even if it were to produce more domestically."

At the same time, "in recent months, companies and commodities traders have shipped more U.S. gasoline and diesel to Latin America and other foreign markets, reaping higher prices than the fuel could fetch domestically," The Wall Street Journal reports. "The jumps in fuel shipments abroad are further draining U.S. inventories that were already languishing at low levels after output cuts during the worst of the pandemic. Now, American oil-and-gas producers and refiners are struggling to keep up with resurgent demand."

Even though energy executives "see high prices today, they're afraid that prices are gonna tank over the life of that well," Knittel said. "They also have this expectation that electric vehicles are going to continue to grow, which means that 10 years from now, that oil well may not be earning profits. And so all of that is creating a disincentive to drill" or maintain, much less increase, refinery capacity.

Not to be too much of a downer, but U.S. oil prices are probably artificially low, even at $5 a gallon. The Center for Investigative Reporting (CIR) tried to figure out how much gas really costs when you factor in pollution and resulting health issues. They decided the correct price for a gallon of gas is $15 a gallon — and that was in 2011, when the average national price of gas hovered between $3.09 and $3.91 a gallon.

Explore More

Peter has worked as a news and culture writer and editor at The Week since the site's launch in 2008. He covers politics, world affairs, religion and cultural currents. His journalism career began as a copy editor at a financial newswire and has included editorial positions at The New York Times Magazine, Facts on File, and Oregon State University.