Gasoline Prices – Now With Prices and Emotions Falling, A Little Perspective

According to the Energy Information Agency (EIA) of the U. S. government, “In 2005 the price of crude oil averaged $50.23 per barrel, and crude oil accounted for about 53 percent of the cost of a gallon of regular grade gasoline. Taxes (not including county and local taxes) account for approximately 19 percent of the cost of a gallon of gasoline. Refining costs and profits comprise about 19 percent of the retail price of gasoline. Distribution, marketing and retail dealer costs and profits combined make up 9 percent of the cost of a gallon of gasoline.”

Also available from the EIA are the historical crude and gasoline prices. The chart below displays these EIA data from 1978 to 2006. All prices are adjusted to 2005 dollars. The red line represents the average annual U. S. domestic crude oil cost. The blue line is for the average annual cost of retail gasoline – all grades. The numbers for 2006 are an estimate based on 2006 data from the EIA.

Click on image for full view.

Note that the prices for crude oil are for one tenth (1/10) of a barrel to provide scale.

Do you see the correlation and that maybe gasoline prices could have been much higher if the correlation was tighter?