What makes up the cost of gasoline and diesel fuel?
While most of us don’t pay attention to the fluctuating price of commodities, almost all of us know the daily price for a barrel of oil. The price you pay for a gallon of gas at your local station is a combination of many costs occurring over many different time periods. That’s why even though you hear on TV that the price of oil declined overnight, you may see the price at the pump going up the next morning when you drive to work. Let’s do a little drilling of our own and see how the cost per barrel ultimately becomes the price per gallon. First, and this is important, the prices you hear quoted for a barrel of oil on TV are “futures” prices. That means they are the price that refineries are paying today for delivery of that barrel at some point in the future. Second, all oil trading in the world is settled in dollars. It doesn’t matter if you are buying oil from Saudi Arabia, Nigeria or West Texas crude – you pay in dollars. That means the value of the dollar against other major worl
