Price of A Gallon of Gas

From the US Department of Energy, here is how they breakdown the cost of a gallon of gas. Libya is under siege and the futures price of oil spiked $9 higher tonight.  Because 40% of the corn crop is going to ethanol, corn was up 23 cents per bushel too!

Currently, 68% of the pump price can be attributed to the cost of a barrel of oil. 14% goes to taxes, 8% to marketing and distribution, and 10% is refining.

The price of crude varies. That’s why the price of gas at the pump varies. Taxes, the cost of refining, and distribution costs are relatively static. It is relatively certain a gallon of gas will top $4 per gallon soon. Not only that, but gas will be well over $4 per gallon for the summer driving season. One reason for that is the summer reformulation that the government mandates.

There is no short term fix to get the cost of a gallon of gas down. The long term fix is to create more supply of all proven energy; oil, natural gas, coal, and nuclear. Solar and wind won’t cut it. We ought to be drilling, mining, and building.

There is a short term fix to the cost of corn. End the ethanol subsidies. Corn prices would drop, causing repercussions throughout the entire agriculture economy, because so much of it relies on the price of corn.

The high cost of energy will slow down the American economy. It is a hidden tax. Households are forced to choose between spending on fuel, or spending on other goods. Because the demand curve for fuel is relatively inelastic, it means we buy fuel and forego luxury items.

If you want to watch the price of West Texas Intermediate Crude in real time, register at this link. It’s free.

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