What makes up the price of a gallon of gas? [View All]

So how exactly are gas prices set? What determines the hair-pulling figure you see displayed in large electronic or plastic numbers? Why is a gallon of gas, say, $4.11 — not $4.10 or $4.12? Why is the price different across the street?

It all starts with oil.

The biggest factor in the skyrocketing price of gasoline is the historic ascent of crude oil, which has surged from $45 per barrel in 2004 to more than $135 this past week, setting new record highs all the while. In the first quarter of this year, based on a retail price of gas that now seems like a steal — $3.11 a gallon — crude oil accounted for all but about a dollar, or 70%, of the cost, according to the federal government. The rest is a complex mix of factors, from the cost of turning oil into gas to taxes to marketing costs to, sometimes, nothing more than the competitive whims of your local gas station owner. Not that understanding the breakdown makes it any less cringe-inducing to fill 'er up.

How it all works. First a primer on how gas gets to your tank:

Once oil is pumped from the ground, it can be sold on the spot market, a last-minute trading arena where oil companies and distributors buy and sell to each other, or straight to refiners. After it's brewed into gasoline, the product can again be sold on the spot market, or directly to wholesalers, who in turn can supply their own stations or sell it to other retailers.

Each step of the way, buyers and sellers negotiate a price until, finally, drivers pay the ultimate tab at the pump.

At the starting point of all this is the price of oil — which, like the oil itself, is nothing if not crude.

Get the entire article & how it works @ the link: http://www.usatoday.com/money/industries/energy/2008-05-24-gas-breakdown_N.htm