If you own a large trucking company or vehicle fleet, you may find it challenging to create and stick to a specific budget because of how much fuel prices can fluctuate. Similarly, if you own a gas station, you may question why your competitor’s prices are often higher or lower than your own carefully calculated amounts.
If you are not sure how gas price regulation works, check out this behind-the-scenes guide to learn more.
The Basics of Fuel Pricing Fluctuations
There is not just one specific culprit when it comes to what regulates fuel prices. Several key factors, such as the global crude oil cost, refining costs, taxes, and marketing costs, will all play a part in determining how much fuel fluctuates throughout the year.
Within each of these categories, there are several elements, ranging from seasonal demand to economic factors, that can also contribute to the cost. Understanding what influences gas prices and how it all works can help your trucking business budget, manage costs and prepare your gas station to be competitive in your local market.
How Do Gas Prices Work?
The primary factor determining fuel prices is the cost of crude oil. Crude oil is the main commodity used to produce gasoline, so any fluctuations in its cost will directly impact how much individuals pay to refuel their vehicles and equipment and how much businesses pay to refill their gas stations.
Crude oil accounts for more than half of the amount paid per gallon of gasoline. It is a widely traded and used commodity that is heavily impacted by supply and demand. These market forces work behind the scenes and significantly impact the final price of fuel.
Whenever the demand for gasoline exceeds the supply, the prices will increase. Imbalances between supply and demand can cause the prices to fluctuate. Other local factors, such as the type of gasoline, branded or unbranded, and supplier contracts, can all play a part in gas prices.
Similarly, if there are any disruptions that slow down production, such as geopolitical issues, they can impact supply and demand. Oil producers can either raise or lower the price of crude oil, which will impact the final cost.
Consumer behavior and demand will also play a key role in how gasoline providers price their products. From environmental awareness to economic activity, many factors can shift consumer preferences and spending.
Refining Costs
Another factor that can affect gas prices is the refining process. While refining costs make up 11%-15% of the cost per gallon of gasoline, it can fluctuate. Specific factors that can impact refining capacity and cost include geographic location and the season.
Some areas of the country will have stricter requirements for greenhouse gas emissions. This is why different regions will have specific formulations designed to reduce air pollution. In those geographic areas, the crude oil will require a specific formulation and level of refinement, most likely requiring specific processing technology as well.
Seasons will also influence the refining cost. During the summer, you can expect higher production costs. With the increase in weekend getaways and road trips throughout the summer months, the demand for gasoline will go up, resulting in a price increase. Specific fuel mixes could also be required during each season to comply with federal standards and Environmental Protection Agency (EPA) regulations.
Taxes and Regulations
Various local, state, and federal taxes will significantly impact fuel costs. In fact, taxes make up the second-highest contributing factor to gas prices. On average, these taxes and fees make up around 14% of the price individuals pay at the pump.
The federal tax on motor gasoline, which includes a federal Leaking Underground Storage Tank fee and excise tank, is 18.40 cents per gallon. State gasoline taxes and fees can vary depending on local and municipal taxes. This is why the price of gasoline may be significantly higher in some states than in others.
Distribution and Marketing
Another factor that controls gas prices is distribution and marketing. The distribution and delivery cost factors in everything ranging from truck to rail costs associated with transporting the gasoline from the refinery to the terminal.
After the crude oil has been refined into gasoline, it is shipped to a storage tank. Many refineries use pipelines to distribute the gasoline to terminals. Before it reaches its final destination, it is blended with other products. Tanker trucks then deliver the gas to individual gas stations.
Marketing costs are also included in the retail price and are designed to support gasoline sales. The cost of marketing can vary depending on the location, competition, and individual marketing strategy of gas station owners. Just like with every other contributing factor, the overall cost of distribution and marketing can vary but usually accounts for around 11% of the amount individuals pay per gallon of regular gasoline.
The Role of Gas Stations in Setting the Final Price
While some convenience stores that sell gasoline are owned by major oil companies, many of them are independently owned. These gas stations set prices based on their location and market. The goal is to be competitive in their local market while encouraging brand loyalty and repeat customers.
Individual retail stations will include variables such as transportation costs. Even if there are gas stations located within close proximity to each other, factors such as where they sourced the gasoline and the distribution and refining process will influence the final price. One gas station may have paid more for the gasoline based on their contractual agreement, which will then be reflected in the price individuals pay at the pump.
Some stations may also be more focused on making a profit through the items they sell in the convenience store. If their main goal is amenities instead of fuel, the price of gas may be lower to draw potential buyers to the station.
Turn to SC Fuels for Top-Quality, Cost-Effective Fuel
Whether you are interested in learning more about regular fuel prices or branded wholesale fuel delivery, SC Fuels has you covered. We specialize in delivering top-quality petroleum products like gasoline, diesel fuel and alternative fuel for commercial and industrial customers.
No matter where you are located, you can take advantage of safe, accurate, and on-time delivery — all for a competitive price. We have an extensive end-to-end delivery network to ensure you receive the fuel you need when you need it most. With years of experience and industry-leading expertise, we will make sure you take advantage of fueling solutions that fit your standards and work environment.
To discover how we can serve as your trustworthy partner and fuel supplier, reach out online today.
