Higher gas prices explained – what we pay for gas & what’s going on
Bottom Line: You’ve probably noticed that just about every time you’ve filled up recently – it costs more. All in we’ve now had eight consecutive weeks of rising gas prices nationally with the increase being a total of 50 cents per gallon. In Florida however, we broke the rising trend over the past week and have a statewide average settling in around $2.71 cents per gallon. Still, the stories of the potential for $4 per gallon gas are out there – if it happens it’ll be in Hawaii and California – there’s next to no chance of that happening in Florida in the near term. So, what gives?
It’s a one-two-three punch that’s not uncommon this time of year. The first factor is that yes, oil prices are higher. After bottoming out at around $45 per barrel in December (when economists had people convinced a recession was coming), prices have risen to $63 currently. That’s a not insignificant increase of 40% over three and a half months. Still, oil prices are simply back to where they were in November and are actually six dollars per barrel lower than this time a year ago. Recency bias is real when it comes to gas prices. But oil prices are just a piece of the story.
Spring is the time of year that refineries are taken offline in stages to become equipped with EPA mandated “Summer blend” fuel that’s supposed to more environmentally friendly. The formulation itself averages about an extra 12 cents per gallon to refine but we’re not even there, yet. Typically, the price increase isn’t worked in until around May. But when you have a strong economy with more demand for fuel when you have refineries being taken offline – the factors of supply and demand kick in to raise prices higher. What’s more is that a series of issues with refineries has occurred recently, prominently affecting supplies to the west coast, that’s causing a lot of the concern over $4 per gallon gas. So that’s what’s real. What’s important is to remember what we’re really paying for in gas. Much of it has nothing to with a commodity.
In 2019, here’s the breakdown:
- 53% - oil
- 21% - taxes
- 18% - transportation and retail margin
- 8% - refining
You’ll notice that only about half of the cost has to do with oil and the next highest expense is tax. Tax that’s paid at the federal, state and local level. This is one area where taxes are much higher than average in Florida, especially South Florida. Here’s the breakout:
- 60.4 cents per gallon to the local, state and federal government
Only six states have a higher total gas tax than Florida and in South Florida local governments have maxed out what they can tax under state law. Lucky us. The more you know...