Monday, April 17, 2006

Why Is Gasoline So Expensive?

ABC News
Why Is Gasoline So Expensive?
Price of Crude Oil Is Biggest Cost

April 15, 2006 — - Just as Exxon Mobil broke the news this week that it was giving its CEO a nearly $400 million retirement package, the government announced the average price of a gallon of gas could rise this summer by more than 10 percent.

In just two months, the price of gasoline at the pump has jumped 40 cents a gallon (go to the end of this story for ways to shop for the lowest gas prices in your area).

It has lot of people telling tales of worry and hardship, and asking: Where is all the money going?

Nina and Gordon Erquiza own a small pipe-cleaning company in Los Angeles. Gasoline for their two trucks now costs as much as $800 a month.

"It is a choice that we make every day of our lives -- whether or not to buy gas and go to work or to have health insurance," Nina Erquiza said. "It's an every day thought and an every day issue for us."

Gas Price Breakdown

Though the Erquizas live where gasoline taxes are among the highest in the country, their problem begins at the beginning, with the sharply higher price of crude oil. In a gallon of unleaded, crude accounts for $1.45 of today's average price of $2.68 at the pump.

Next is the cost of refining that oil -- 55 cents of the gallon's price, a big jump in costs.

"They're normally about $5 to $10 a barrel," said Tom Kloza, an analyst. "Now, it's closer to $20 to $30. And that's because a lot of money is flowing in on the fear we won't have enough refining capacity this summer."

Next is transporting gas to the pump -- just 5 cents a gallon.

And then, there's taxes -- 18 cents for the federal government and 27 cents for state governments.

"Taxes used to represent as much as 40 to 50 percent of the price you paid at the pump," Kloza said. "Nowadays, it's a much lower figure than that because they haven't changed in 12 years."

What about profits? Big oil companies like Exxon-Mobil make money at every step of the process because they take the oil out of the ground, refine it and sell it. Exxon-Mobil's profit is estimated at a hefty 29 percent.

And the price of gas may continue to go up.

Even without unforeseen events such as another bad hurricane season, Kloza said, "We'll probably peak on gasoline very close to $3 national, with some states above that."

ABC News' Bob Jamieson reported this story for "World News Tonight."

Sidebar: Shop for Low Gas Prices

Several Web sites are geared toward helping consumers find the lowest gas prices in their neighborhoods.

They include the following: