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Gas prices: Here's what goes into the cost of a gallon of gasoline

In this article:
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Yahoo Finance autos correspondent Pras Subramanian breaks down why gas costs so much in the U.S., oil company profits, and the federal gas tax holiday proposed by President Biden.

Video Transcript

[MUSIC PLAYING]

DAVE BRIGGS: The price of a gallon of gas down a nickel over the past week, but still near record highs, as are oil company profits. Senator Elizabeth Warren this morning making multiple price gouging accusations against big oil. Here to give us a deep dive of what actually goes into the cost of a gallon of gas at the pump is Yahoo Finance's senior autos reporter, Pras Subramanian. It's interesting to hear these accusations because, generally speaking, the global market sets these prices, right? Break it down for us.

PRAS SUBRAMANIAN: Yeah, that's right. You know, so this kind of discussion happening along the lines of the suspending that gas tax, right? So let's take a look at what actually goes into the price of a gallon of gasoline. Also we have diesel here. We'll focus more on the gasoline here. So, you know, of course, first and foremost is the price of crude oil. 60% of your cost of gas at the pump is based on the world price of crude oil, you said at $105 a barrel right now. So that's kind of a big component.

The second part is, of course, refining-- 17% here for gas. That's taking that barrel of gas, bringing it to the facility, processing it. But also, it's the cost of transportation, right? So in the South, there's more refiners down there so they get cheaper gas because they don't have to go that far.

DAVE BRIGGS: Yeah.

PRAS SUBRAMANIAN: [INAUDIBLE] So, and then, of course, we have 11% marketing expenses, you know, the gas, Sunoco and Valero [INAUDIBLE] expensive advertising. And also, 12% is that federal tax.

DAVE BRIGGS: So is there room for these oil companies theoretically to price gouge? Is there enough fungible material built in there?

PRAS SUBRAMANIAN: I don't think so because, look, the oil companies made a ton of money last quarter, right? But that's because of the fact that--

DAVE BRIGGS: $35 billion I think it was.

PRAS SUBRAMANIAN: $35 billion in profit. But that's because that's just the going rate of the price-- the world rate of the price of a barrel of crude. They pump it out. It costs anywhere from a $1 for the Saudis to do it. Maybe 20 to 30 bucks in the Permian Basin. And the rest is pure profit. But they're not actually gouging. They're actually just-- that's just the cost of business. And that's the world price that's being given to them at that stage.

DAVE BRIGGS: I think President Biden said it was more money than God, actually, in the quarter. So let's talk about suspending that gas tax and what it would mean for the consumer.

PRAS SUBRAMANIAN: So we're talking about $0.18 federal tax there. The Biden White House says, oh, we'll get down to $1 base if you take away local and federal taxes. I can't see $1 being removed from the price of a gallon of gas just based on taxes.

So we actually have data here on-- Patrick de Haan, our friend from the show, GasBuddy, kind of broke down what the average American would save based on the car they drive per week, right? So a pickup truck, $5 and 1/2 per week you'd save in gas costs if you suspend that tax. Minivan, $3.68. A full-sized car like a Chevy Malibu, almost $3. And then a compact car like a Kia Rio, $2.21 per week.

DAVE BRIGGS: Boy, that doesn't feel so substantial now.

PRAS SUBRAMANIAN: Yeah, so not much of an actual dent into your gas cost. So even doing that, this is more like posture than actually policy helping people in their wallets.

DAVE BRIGGS: And theoretically driving demand up. Pras Subramanian, good stuff. Thank you, my friend. Rachelle.