HAMPTON ROADS, Va. (WAVY) — Despite what may seem like runaway gas prices lately, experts say the people who sell it on the retail level are not getting rich.
When you consider the pipeline that it takes to get that fuel from the well into your vehicle, there’s little room left for profit.
It’s important to know the four main components of what we’re paying for at the pump. Old Dominion University economics professor Robert McNab says we start with the biggest chunk: the price of crude oil.
“We have to get oil out of the ground from either in the United States, Canada or somewhere else in the world,” he said. The cost of crude accounts for about 54% of the price.
“So when the price of crude jumps, it’s no surprise that the price at the pump increases,” McNab said.
Next, federal and state taxes make up about 16% of the price. The combination of the two equals about 45 cents, and 26 cents of that is state tax.
“That’s why you see lawmakers in Richmond discuss whether or not to have a gas tax holiday because it would lower prices at the pump probably 20 to 25 cents,” McNab said.
Third would be distribution and marketing, which comprise another 16%.
“We’ve got the crude oil, we now need to get it somewhere to refine it,” McNab explained.
Finally, refining and profit account for the final 14%. So after refining by the oil company, the actual profit to the retailer will likely be less than 25 cents on a $4 gallon of gas.
“What’s really driving more pain at the pump is increasing crude oil prices, and that’s driven by a global market where everybody is competing for crude oil,” McNab said.
Another way of looking at it: the retailer’s profit on your Big Gulp and snacks is going to be a lot greater than it is on your gallon of gas.
“Much like many retailers, once they get you in the door, they then market much higher volume, at a much higher markup,” McNab said.
To help curb inflation, the federal reserve just announced a hike in interest rates, and more increases are expected throughout the year. McNab says that could indirectly control the price of gas because it will slow consumption as well as our amount of driving.