Goldilocks at the Pump: What Price per Gallon is Just Right?

It’s not uncommon for the price per gallon of gas to become a hot topic of conversation around the old water cooler. Everyone has an opinion. If you spend hours a day commuting for work, you cheer when prices dip. If you rely on oil and gas income to pad the bank account, you like to see the price of gasoline stay steady, or even creep up a bit to ensure job security. When determining  the ideal price for gas, it all depends which side of the oil rig you’re on.

What Determines Gas Prices?

Although multiple factors affect the price per gallon of gas, the main component is the cost of crude oil. According to the American Fuel & Petrochemical Manufacturers, approximately 65 percent of the price you pay at the pump is determined by the crude oil price. Next, refining the crude oil accounts for 13 percent of the cost.  Taxes, distribution and marketing combined make up the remaining 22 percent.

The price of crude oil is determined by the global market before it goes to the refinery. The price of gasoline also fluctuates based on the Organization of the Petroleum Exporting Countries (OPEC) production levels, global demand for crude oil, the amount of U.S. production of crude oil, economic forecasts and political uprisings.

How Do Fluctuating Prices Affect the Economy?

As the price per gallon changes, businesses feel a ripple effect. When crude oil prices drop and gas is lower at the pump, oil refinery employees take a hit. There’s less revenue to pay wages and keep production moving ahead. Temporary cutbacks in working hours and layoffs aren’t uncommon. So for workers who rely on the oil and gas industry, an ideal price at the gas station is one that can offset the cost of oil production and fuel their paychecks.

Oil and gas workers aren’t the only ones who notice changes in prices. Gasoline station owners experience slower sales growth during times of lean gas prices, according to Forbes. Most already succumb to a slim profit margin so they can stay competitive with stations nearby.

When gas prices increase, consumers also respond. In a U.S. News & World Report article, the author explains that commuters spend less inside the gas stations on snacks and beverages, since they get sticker shock at the pump. And some families will cancel summer road trips or vacations to save on fuel costs. When gas prices stay high for an extended period of time, sales of hybrid and fuel-efficient cars increase, putting even more pressure on the ebb and flow of gas production supply and demand. And some consumers simply forgo buying a new car, which may cause a downturn at traditional auto manufacturing facilities.

What Gas Price is Just Right?

Overall, the ideal price of gas is subjective. High prices mean profits for some and cutbacks for others. But, most can agree that steady, predictable prices at the pump are more reassuring than abrupt highs and lows.

If you’d like to learn more about oil and gas production in Denver, Colorado, contact BWAB today.