Up More Than $1 Per Gallon

According to www.GasBuddy.com, the average price for one gallon of unleaded gasoline is a hair over $3.90, up more than a dollar compared to exactly one year ago.  A number of factors influence the price of gasoline.  As we can see from the following chart, gasoline prices have fallen relative to the cost of a barrel of crude oil. 

According to the federal government, the number of operable refineries in the United States has declined from 301 in the 80's to 148 in 2010.  Capacity to produce gasoline in the United States, though, has risen from 1.5 million barrels per day in 2005 to 2.4 million in 2010.  So if supply is going up and gas prices relative to the cost of a barrel of crude oil have fallen, what's with the high price at the pump? 

On Wednesday, ExxonMobil reported first quarter net profits of $10.65 billion, up 69% from last year.  Oil and gas output increased 10% to 4.82 million barrels per day.  

In reaction, President Obama urged Congress to eliminate the wasteful subsidies that the oil and gas industry has enjoyed for decades.  The Presidential initiative came two days after Republican speaker of the House John Boehner (R-OH) suggested generally that the government should take a look at controlling spending to keep the government moving, and that the oil companies "ought to pay their fair share."  Boehner quickly back off the comments.  The U.S. Senate Majority Leader, Harry Reid (D- NV), made very pointed comments.  "We need to take away the subsidies of the five major oil companies,” referring to supermajors: Chevron, ExxonMobil, ConocoPhillips, Royal Dutch Shell and BP.

Another factor to keep in mind is that petroleum fuel is subject to both federal and state taxes.

Motor Fuel Taxes in the United States

Federal and State taxes levied on gasoline and diesel fuels for "on-highway use" generate significant revenue for the Federal Highway Trust Fund and State treasuries. At present, nearly all of this Federal tax income is directed to building and maintaining roadways and funding mass transportation projects. According to the Federal Highway Administration, monies received into the Federal Highway Trust Fund during the 2010 Fiscal Year totaled $24.8 billion for gasoline and $9.1 billion for diesel and special fuels.

Federal excise taxes on gasoline were first adopted in 1932, while Federal taxes on diesel fuel were first imposed in 1951, during the Korean War. The Highway Trust Fund, established by the Federal-Aid Highway Act of 1956 and the Highway Revenue Act of 1956, was designed specifically to finance a national system of interstate highways. The Fund marked the first time that motor fuel tax revenues were dedicated to roadway construction and maintenance.

Current Federal motor fuel taxes (for on-highway use) are 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel.

The tax treatment of ethanol fuel mixtures (e.g., a 10-percent alcohol/ 90 percent gasoline mixture) has varied through the years. With the passage of the American Jobs Creation Act of 2004, ethanol-blended gasoline is taxed at the same 18.4 cents-per-gallon rate applied to other gasoline; however, blenders receive a tax credit for each gallon of ethanol used to produce a qualified fuel mixture, including ethanol-blended gasoline. The tax credit is currently 45 cents per gallon of ethanol used in the blending process. The Energy Policy Act of 2005 required that 7.5 billion gallons of renewable fuel (basically ethanol) be blended into gasoline by 2012. Two years later, the Energy Independence and Security Act of 2007 expanded the target to 36 billion gallons of renewable fuels in transportation fuel (including diesel) by 2022.

At the State level, the U.S. Energy Information Administration (USEIA) estimates taxes on gasoline and diesel fuel average 22.6 cents per gallon and 23.1 cents per gallon, respectively, as of January 1, 2011 (Read more)

Set-rate Federal and State volumetric taxes do not account for all taxes on the purchase of on-highway use motor fuels. Many States apply additional sales taxes and other fees. In California, for example, the total per-gallon tax includes Federal excise tax (18.4 cents per gallon), State excise tax (35.3 cents per gallon), State sales tax (2.25 percent), a State underground storage tank fee (2.0 cents per gallon), and an additional tax may be determined by the locality or municipality where the purchase was made.

Motor fuels sales in Chicago have a similar multi-level tax structure. Taxes there include Federal excise tax, State excise tax (19.0 cents per gallon), State sales tax (6.25 percent), Cook County Retail Sale of Gasoline Tax (6.0 cents per gallon), City of Chicago tax on gasoline (5.0 cents per gallon), plus additional small fees.

Fuel Prices Continue to Climb

According to the USEIA report issued on April 20^th, the U.S. average retail price of regular gasoline increased more than a nickel from last week to $3.84 per gallon. This is $0.98 per gallon higher than last year at this time and is the highest price in April since USEIA began tracking weekly data in 1990. The East Coast region tallied the biggest gain in price, more than six cents higher than the previous week, and was followed by the Gulf Coast where prices increased over five cents. The West Coast notched a gain of about five cents to send the average price to $4.08 per gallon; it remains the only major region in the country where gasoline averages more than $4 per gallon. The Midwest registered a four-cent increase on the week. The gasoline price in the Rocky Mountains was also about four cents higher but the region continues to have the lowest gasoline average in the country with the price at $3.61 per gallon.

Almost three cents was added to the national average diesel price this week to reach $4.11 per gallon. The diesel price is $1.03 per gallon higher than last year at this time. The biggest increase was on the Gulf Coast, where the average climbed more than three cents per gallon. However, the Gulf Coast diesel price is the least expensive in the country at $4.03 per gallon. The East Coast, Midwest, and Rocky Mountain regions all registered gains of almost three cents on the week. Although the West Coast added only a penny this week, West Coast diesel prices are the highest in the country, averaging $4.32 per gallon.