Explainer: What is happening with U.S. gasoline prices?

Chevron fracking site near Midland, Texas, USA August 22, 2019. REUTERS / Jessica Lutz / File Photo

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Nov. 24 (Reuters) – The United States uses more gasoline than any other nation in the world, and recently Americans have been concerned about the rapid rise in fuel costs.

The White House on Tuesday announced plans, in coordination with other nations, to release millions of barrels of oil from strategic reserves to cut costs. Continue reading

The median retail price of gasoline was last at $ 3.40 for a standard gallon, down from about $ 2.11 a year ago. The rapid increase – 61% in 12 months – has alarmed consumers.

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According to the American Automobile Association, 48.3 million people are expected to take to the streets over Thanksgiving, nearly 4 million more than last year, albeit still below 2019 levels.

WERE GASOLINE PRICES EVER THAT HIGH?

Yes sir. The cost of a gallon of regular gasoline was $ 4.11 in July 2008. Current costs are still significantly lower, but such a rapid increase is rare.

WHAT’S IN THE GASOLINE PRICE?

There are several factors. According to the US Department of Energy, crude oil makes up more than half the cost. This price is largely determined by global supply and demand.

Consumers pay additional costs for adding ethanol and other additives, as well as for distribution and marketing. These costs have increased significantly, according to Tom Kloza, global head of energy analysis at Oil Price Information Service (OPIS).

“Gasoline that you get at the pump actually contains eight or nine different elements, all of which have become more expensive in recent months,” said Kloza.

Taxes account for around 17% of the costs. Federal gasoline tax is 18 cents, while the average taxes and fees per state are 30 cents, although this varies (see CHART).

Average of taxes and charges on gasoline by state.

HOW DOES THE RELEASE OF PIPE RESERVES AFFECT FUEL PRICES?

The release from the US strategic oil reserve would be a combination of a loan and a sale to companies, US officials said for a total of 50 million barrels.

Oil prices have been falling for several days as the oil market awaited news of a possible release. However, since it takes time for a strategic release to be incorporated into the refining process, drivers are unlikely to see falling pump prices when they take to the streets on Thursday for the U.S. Thanksgiving holiday.

“The price relief is unlikely to be passed on to consumers in the short term unless the Biden government prioritizes releasing gasoline supplies,” said Louise Dickson, senior oil market analyst at Rystad Energy.

WHAT ELSE CAN BE DONE TO BUG THE PRICE ON THE PUMP?

In response to higher gasoline prices in his state, Florida Governor Ron DeSantis called on lawmakers Monday to consider waiving the state’s gasoline tax, which is used to fund public transportation infrastructure. Florida’s total state taxes and fees are nearly 35 cents above the national average.

“Other republican states could follow suit, especially if they argue that the revenue comes from funding the federal infrastructure bill,” Kloza said.

WHERE ARE THE GASOLINE PRICES AFTER THIS WEEK?

Gasoline prices are likely to fall in the coming weeks, but much of this is due to lower demand for the fuel during the winter months, according to Kloza.

If gasoline demand returns, US consumers will likely return to the pumps, but the capacity to refine the oil will be reduced after a year of closing even large refineries around the world.

President Joe Biden, in his remarks on releasing oil from the strategic reserve, said prices should be about 25 cents lower than now. In fact, the gap between unfinished gasoline futures known as RBOB and retail prices is currently $ 1.14 per gallon, the highest since April 2020.

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Retail gasoline prices exceed wholesale costs due to refining, transportation, marketing, and taxes, and the gap between the two tends to fluctuate – with retail prices often falling more slowly.

Reporting by Laura Sanicola in New York Editing by Matthew Lewis

Our Standards: The Thomson Reuters Trust Principles.

https://www.reuters.com/markets/commodities/what-is-happening-with-us-gasoline-prices-2021-11-24/