The price of a gallon of gas is based on the combination of four costs: that of crude oil, of refining gas, of distribution and marketing, and of taxes.
Crude oil costs make up about 76% of the cost of gasoline, according to U.S. Energy Information Administration (EIA). Thus $2.66 of a $3.50 gallon of gasoline is set before the oil is even refined. Global markets, reacting to supply and demand, determine the cost of crude oil. Just like any commodity, from gold to corn, a shortage in supply or an increase in demand leads to a rise in prices.
Refining oil is the next step in the processand the next expense for drivers. Gasoline is extracted from crude oil and additives, including lubricants and detergents to reduce engine deposits, are added. As of January 2012, the EIA found that refining was responsible for 6% of the cost of gasoline.
Distribution and marketingthe part of the process most apparent to consumersconstitutes another 6% of gas prices. That portion of the cost includes the shipping and transportation of the gasoline, a markup to cover retailers' expenses, and any advertising created to appeal to customers.
The remaining 12%or almost 50 cents per gallon todaygoes directly to federal, state and local governments in an array of sales and excise taxes. The federal gas tax is 18.4 cents on every gallon of gasoline sold in America. State gas-tax rates vary from a low of eight cents per gallon in Alaska to a jarring 49 cents per gallon in New York. Other states where it's steep to fill up include California and Connecticuteach with 48.6-cent-per-gallon gas taxesand Hawaii, at 47.1 cents per gallon.
Some local governments have gotten in on the act, too. In California, local sales and excise taxes on gasoline average 3.1%, according to the Los Angeles Times. That works out to about 12 cents in local taxes for each gallon of gas, based on the state's current average of $3.80 per gallon.
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