Deconstructing High Gas Prices

Jun 11, 2013 by

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High Gas Prices

Every driver has been there: You pull up to the pump, swipe your credit card and then recoil from the final cost of filling up your tank.

Our wallets are feeling the strain of increased fuel costs, but what exactly are we paying for when our cars guzzle up gallons of gas? And how does the rising price of gas spill over into the costs of other products?

The Basics

Ken Cohen at Exxon Mobile’s Perspectives blog breaks down exactly what we’re paying for in a gallon of gasoline, beginning with the cost of raw materials. As you might expect, the cost of crude oil is the biggest single expense in a gallon of gas. That Perspectives post breaks down the component costs of a gallon of gas that costs $3.27. (According to the Gas Price Locator, as of June 12, 2013, the national average is up to $3.57 per gallon). Of that amount, a hefty $2.55 goes toward crude oil, which then needs to be refined.

That’s why in the long term, the biggest hope for mitigating gas costs is innovations in fuel-efficient vehicles. Of course, you could just sit at home all day doing nothing and save big. But for those who need to head out onto the open road, fuel-efficient vehicles are the best bet for your wallet.

According to that Perspectives post, the cost of covering taxes amounts to (on average) another 39 cents, while distributing and marketing the product adds 33 cents to the price tag.

The Trickle-Down Effect

The shipping industry feels the pinch more than most, and the increased cost of fuel is often passed on to consumers.

Rising gas costs don’t just affect us at the pump. The shipping industry feels the pinch more than most, and the increased cost of fuel is often passed on to consumers. Brandon Gale of Retail Shipping Associates told the New York Times in 2011 that the clock was ticking on how long it would be before high gas prices filtered down to customers.

UPS spokesman Dan McMackin went a step further, directly telling the International Business Times that high gas costs were reflected in the increased prices of their services. You’re paying more to get a package delivered than you were a few years ago, and that increase is mostly due to the price hikes at your local gas station. Moreover, stores that  need to pay more to get their products shipped — everything from groceries to electronics — raise prices, in turn, to recoup those costs.

It’s not all bad news: A recent Forbes report claims we’re in better shape to withstand rising gas prices this year, citing a strengthening economy and a recovering job market to help soften the blow. Still, those eBay bargains you’re eyeing will be pricey to ship.

Take a Look Around

To get an idea of how much you’re paying for gas relative to other products, it’s worth using this comparison tool provided by the Bureau of Labor Statistics. Here, the average consumer price for a number of products is provided, including a gallon of gas, a loaf of bread, a dozen eggs, and even a whole chicken.

According to that data, a gallon of milk cost an average of $3.428 in April 2013, compared to $3.59 for a gallon of regular unleaded in the same month. Unfortunately you can’t (yet) power your vehicle by milk.

In contrast to those figures, water costs much less per gallon. Detroit residents, for example, pay about a penny for 5 gallons of tap water; in Madison, Wis.,  1,000 gallons of water cost about $2.81. Now all we have to do is wait for the first water-fueled car to come along so we can take to the highway with a lot less stress on our minds.

Want to protect your car? Get an auto insurance quote now.

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Melissa

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