By Sam Baker, KERA Morning Edition Host
http://stream.publicbroadcasting.net/production/mp3/kera/local-kera-941677.mp3
Dallas, TX –
Hard to imagine now, but gasoline sold for around two dollars a gallon at the beginning of 2009. Prices have risen considerably since then, but with enough fluctuations in between to ask what really determines how much you pay at the pump. KERA's Sam Baker went to Dan Ronan of AAA Texas for some answers.
Dan Ronan: So if a gallon of gasoline is three dollars, two dollars of that is the price of oil to make that into the gasoline. The other 33 percent in the state of Texas and across the country goes for the refining cost, the state taxes, the distribution of the oil to get it from the refiner, and the marketing. Those are fixed, hard costs that, if anything, they will be going up.
The good thing is, and there's a good point in this, because of the way things are in Texas with refineries being close, real close and the fact that Texas as one of the lowest gasoline sales taxes in the entire country, we're typically about 25 cents below the national average.
Sam: But gas prices fluctuate throughout the course of a year and they do so for different reasons?
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Ronan: Demand is a big part of it, so as demand goes up, you're likely to see to prices go up.
Sam: Aren't there period where they reformulate gas?
Ronan: The E.P.A. has rules about the type of gasoline, because of ozone, that can be used during the summer months. So, during late February and March, refineries have to change the way they reformulate the gasoline and they have to shut down part of the refinery, add new chemicals, add new additives, and that adds, in most cases, about ten cents to the cost of the gasoline because they've got these additional chemicals and additives they have to put into the fuel to make the air cleaner. And they also have to use all of the old gasoline, get that out of the system and make new gas. Refineries typically go through maintenance periods in late February and March and then again in October and early November.
Sam: And weather creates problems.
Ronan: Much of our refining capacity is along the Louisiana-Texas coast. You lose a refinery or you lose three or four refineries, now all of a sudden you'll have spot shortages.
The other thing is that oil is traded like a commodity. What traders are saying is that by trading oil, they're buying contracts for 2011 and they're betting the country's economy is going to be improving because there's more demand. So they're hedging.
Sam: But of course that costs is passed on to us, the consumer.
Ronan: It's passed on to us now because retailers at gas stations have become very good at watching where oil prices are going. So they'll see prices go from 72 dollars a barrel to 90, and they'll say "I need to increase my price by 10 or 12 or 15 cents," whatever it is. So they move their prices up now, when in reality the contracts purchased by the persons trading the oil, those contracts are for a period three or six months down the road.
Sam: So gas prices change on Monday. Why does that have to raise prices at the retailer where I buy gas on Tuesday for gasoline in storage tanks already in storage tanks underground?
Ronan: See, the things is retailer don't make a lot of money on gasoline. A gas station will probably make a dime on a gallon of gasoline. Where they make most of their money is when you come in to buy soft drinks, when you come to buy sandwiches, or you come into buy alcohol, cigarettes, whatever is
Sam: The convenience store portion of it
Ronan: That's where they make a good bit of their money. The gasoline is an inducement to get you in. And then they make their money on the other products they sell there. So they've go to make their money and they have prices that are passed along to them, too. Because when that tanker truck pulls up at the gas station, they've got pay the bill to get that gas from the truck into their storage tank.
Sam: But sometimes the prices go up and then in a couple of days they start to slide down again. This is still about
Ronan: It's all about supply and demand.
Sam: So when consumers get angry when prices go up, and they say I don't like this, but, hey, there's nothing I can do about it, is that really true?
Ronan: Pretty much. Or what they can do is ay I'm going to drive less. Or I will drive a little slower. Cars tend to operate in a peak fuel efficiency from 55 to 65. Cars, to go from zero to 20, that's where you use most of your fuel, to get the car going. Once you're in cruise going from 30 to 60, you're not using nearly as much fuel as it takes to get that 3,000 pound vehicle out of the starting gate. So, driving habits play a big factor. We can use less gasoline if we just drive a little bit gentler.
Dan Ronan is Manager of Corporate Communications for AAA Texas.
You can find more economy-related stories at www.kera.org/economy.