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Technology & Innovation — June 27, 2011

How Gasoline Prices Are Formed

Think the U.S. can drill its way out of expensive gas? Think again, says The Atlantic. Derek Thompson explains what goes into the price of gasoline and why is it suddenly rising so fast.

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What’s the Latest Development?

With soaring gasoline prices putting additional burden on an economy that’s recovering from a housing bust, credit crunch, and deep recession, Derek Thompson decided to look at what goes into the price of gasoline at the pump and why is it rising so fast all of a sudden. The main pricing components are state and federal gas taxes, distribution and marketing, refining, and the price of crude oil.

What’s the Big Idea?

The price of crude oil has nearly tripled in the last seven years. In 2004, when the average price for crude oil was $37 per barrel, crude composed only 47 percent of the price of regular gasoline. Today, crude is closer to $111 per barrel and accounts for two-thirds of the pump price. To find out why, Thompson spoke to energy experts, who said supply and demand was the main factor but others were the Middle East, the weak dollar, summer, and speculation.

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