Video: What makes gas expensive?

By Correspondent
NBC News
updated 4/2/2004 5:44:20 PM ET 2004-04-02T22:44:20

Gasoline prices in the United States hit a new high on Thursday at $1.755 per gallon for self-serve regular, making things even tougher for American motorists at the pump, the AAA motor club said Friday.    

It was the seventh time in the past eight price surveys conducted by the AAA that showed a new record high.

As the price of gasoline seems to climb almost on a daily basis, motorists across the country are asking why? The best explanation can be found by breaking down the cost of a gallon of gasoline.

Breaking down the cost
Southern Methodist University energy analyst Mark Baxter helped make sense of what goes into the price per gallon. Using the example of a gallon of gas that costs $1.50, Baxter broke down the costs.       

Baxter said crude oil accounts for about half the cost, equaling an estimated 75 cents. Refining the crude into gasoline costs approximately 10 cents a gallon. Distributing and marketing cost about 15 cents. The profit for the service station dealer is equal to about 1 to 3 cents. And the rest? Taxes.

So half the cost is crude oil, which is the one component that fluctuates the most. Right now it’s selling for approximately $35 a barrel. Baxter said it will probably climb more, perhaps to $40 a barrel, which would drive the average price to more than $2 a gallon nationwide.

Costs high, but still not the 1970s
Of course, $2 per gallon of gasoline is already common in some states with high taxes, and especially in California where the added cost of refining is necessary to comply with tougher clean air laws.

But Baxter was quick to say that the situation could be worse. Today’s prices are not an all-time high when adjusted for inflation.

Baxter noted that gasoline costs were much higher in the 1970s and early 1980s during the oil shortages and the gas lines that crippled much of America. According to the U.S. Energy Information Administration (EIA), using today's dollars, the all-time high was in 1981 at $3 per gallon.

”We haven't gotten there yet, nor have we gotten to the prices that our European friends are paying for a gallon of gasoline, anywhere from $5 to $7 a gallon,” Baxter said.

Europeans are quick to remind Americans that they have it a lot easier in terms of gasoline prices. Gasoline prices in Europe are routinely three times as high as in the United States. 

But, according to the EIA, the worst may still be ahead for American drivers.

High-stakes, high-tech drilling

A recent EIA study has said that the highest price for regular gasoline is likely to be reached this month or in May, near $1.83 a gallon.

Using AAA survey results, California on Thursday once again had the highest price for regular gasoline in the country, at $2.12 a gallon. South Carolina once again had the lowest, at $1.62 per gallon.

AAA is the largest motorist and travel group in the United States and conducts price surveys five days per week and not on weekends of more than 60,000 gasoline stations. It was formerly known as the American Automobile Association.

There is an upside to all this of course. Here in Weatherford, Texas, about 60 miles west of Fort Worth, there is a large rig drilling for oil. The high price of crude oil has made exploration for new oil very profitable again.

Jim Cummins is the NBC News Dallas Bureau chief on assignment at a drilling rig near Weatherford, Texas. Reuters contributed to this article.

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