As an important commodity that is vital to so many other aspects of the economy, the gallon or barrel of gasoline price catches the attention of financial and economical analysts everywhere whenever it fluctuates. No other commodity has its per-gallon price displayed in such a visible fashion beside highways and city streets, and no other commodity catches the attention of so many individuals when it suddenly becomes more expensive. When dealing with gasoline prices, however, one must differentiate between wholesale and retail.
When looking at current gas rack prices and retail prices, know that the wholesale price is what the retailer pays and that the retail price is what the customer pays.
Basics of Pricing
Wholesale price is what a retailer pays for a product. Conversely, retail price is what the consumer pays for a product. Sometimes, there may be multiple merchants buying and selling the product before it ever gets to the consumer. The more levels of buying and selling there are in the marketing and distribution of a product, the more it will cost in the end.
In the United States, sales tax usually does not apply to wholesale pricing, regardless of how many times a product is bought and sold. Only when a product is sold to the consumer — whose primary purpose is to use it rather than resell it — does it incur sales tax.
Gasoline Wholesale Price vs. Retail
The gas wholesale price — or rack price — is what the gas station owner must pay for the gasoline that he or she sells. This price includes the crude oil cost, distribution costs, refinery costs and profits, and any underground storage tank fees that the state or local government may levy on the retailer.
The retail price, though, is what you actually pay when you put gas into your car or truck. The retail price of gasoline consists of the gasoline wholesale price, state and local sales taxes, state and federal excise taxes, other taxes such as state road tax and the retailer's markup.
Factors Determining Gas Prices
As with any commodity, gasoline's price fluctuates according to supply and demand. When supply decreases or when demand increases, prices rise. When supply increases or when demand decreases, prices fall.
Total demand almost always rises from one year to the next, but demand does often fall during non-peak seasons of the year. The supply of crude oil — and the supply of gasoline — frequently drops as a result of war, embargoes and other matters relating to international affairs.
Controversy Over Gas Taxes
In the United States, many feel that gasoline taxes are too high. However, U.S. gasoline taxes are still very low compared to many other industrialized nations. In some nations, more than half of the retail price of a gallon of gasoline is purely the result of taxation. Many in the United States feel that this is detrimental to the economies of those nations, but others argue that these taxes have caused those nations to adapt so that they no longer need to rely on petroleum imported from other nations, thus protecting them from the economic hazards of extreme price fluctuation.
Misconceptions About Gas Prices
Along with the retail and wholesale prices, analysts and media outlets frequently talk about the price of crude oil. Some people think that the price of crude oil is the gasoline wholesale price, but this is not the case. Crude oil is a raw petroleum product that has not yet been refined. The difference between crude oil pricing and wholesale gasoline pricing is primarily due to the refining process.