By Travis Justice
Arkansas Farm Bureau

At the risk of stating the obvious, gasoline prices are certainly the topic of conversation and concern everywhere and with everybody.

The escalation in fuel prices over the past few years, and particularly so far this year, is rippling through the economy. We’re getting a vivid picture of just how reliant our nation is on fuel:  it moves every consumer item we buy, moves us to and from work, allows us recreation, and the list goes on.

Last year, the United States consumed about 142 billion gallons of gasoline, an average of 390 million a day, some 61 percent of all energy used for transportation. Gasoline accounts for 44 percent of all petroleum usage and 17 percent of all energy the U.S. uses.

In the U.S., we refine about 47 barrels of gasoline from every 100 barrels of crude oil. (One barrel equals 42 gallons.)

The components of the retail Price of gasoline

The cost to produce and sell gasoline in this country includes the cost of crude oil to refiners and the cost to refine, market and distribute the resultant gasoline, as well as retail stations’ costs and taxes. Retail pump prices reflect these costs, in addition to profit margins of each.

With the recent run-up in prices, a gallon of regular-grade gasoline breaks down thus:

• Crude oil – 70 percent.
• Refining costs and profits — 15 percent.
• Distribution and marketing — 8 percent.
• Federal and state taxes — 7 percent.

These figures may vary by region, depending on distance from refineries and local specifications.

About foreign oil

Crude oil prices have been the primary mover of retail gasoline prices lately. World crude prices are at a record, due mainly to high demand worldwide. Additional factors that contribute to higher crude prices include political events and conflicts in some major oil-producing regions and the dropping value of the U.S. dollar (the currency for global crude oil trade).

The Organization of Petroleum Exporting Countries has significant influence on world oil prices because its members produce more than 40 percent of the world’s oil. They also have more than two-thirds of the world’s crude reserves. Moreover, only OPEC countries have “excess production capacity” and can ramp up their oil production quickly.

Last year, about 66 percent of U.S.-processed crude oil was imported, mostly by ocean tankers. Surprisingly to most people, Canada is the largest source of imported oil into the U.S. Next comes, in order, Saudi Arabia, Mexico, Nigeria and Venezuela. The U.S Gulf Coast is the source of some 40 percent of U.S.-produced gasoline and the starting point for most major gasoline pipelines.

Other factors influence gasoline prices

Some areas in the U.S. must by law use special “reformulated” gasoline with additives to help reduce carbon monoxide, smog and other toxins put into the air when that fuel burns or evaporates during refueling. Other environmental programs restrict the transportation and storage of gasoline.

These programs tend to add to the cost of producing, storing and distributing the fuel. About one-third of the gasoline sold in the U.S. is reformulated.

A Word about Diesel

Commercial-carrier vehicles — trucks, trains, ships, farm and construction vehicles, etc. — are far and away the biggest consumers of diesel fuel. Distilled from crude oil, a full 75 percent of U.S. diesel is burned in “on-highway” motor vehicles.

Recent developments have caused diesel fuel to be more costly than gasoline. Since 2004, world demand for diesel and other distillate fuel oil has risen steadily, with the strongest demand from China, Europe and the U.S.

Here, the transition to low-sulfur diesel fuel has affected fuel production and distribution costs. Also, the federal excise tax on diesel is 6 cents higher per gallon (24.4 cents a gallon) than the tax on gasoline.

Current gasoline and crude oil prices are not only causing individuals to rethink their transportation and fuel “requirements,” but also our country to examine itself. How do we need to approach our domestic oil and gas exploration to develop and use alternative energy sources?

To what degree should we environmentally restrict energy industries, and how do we institute affordable conservation measures?