The price of gasoline affects everyone. Recognizing this fact, Utah’s petroleum industry strives to provide a reliable supply of fuel products for consumers at fair market prices. Crude oil and gasoline are commodities and are subject to market forces like any other commodity. Fuels manufacturing, distribution and marketing are extremely competitive businesses. Factors Affecting the Price of Gasoline
What Determines the Cost of Crude Oil?
- The cost of crude oil
- Market conditions
The cost of crude oil is the largest factor in the retail price of gasoline. The cost of crude oil as a share of the retail gasoline price varies over time and across regions of the country. Crude oil prices are determined by both demand and supply. World economic growth is the most significant factor for demand. Increases in U.S. oil production in the past several years have helped reduce upward pressure on oil and gasoline prices.
Crude oil used in Utah is produced in Utah, other Intermountain West states and Canada. Oil production plays a key role in the economic development and wellbeing of rural Utah. Utah’s refineries “monetize” and provide value to Utah’s crude oil which otherwise would struggle to find markets. Due to its waxy, paraffinic nature, nearly all Utah crude oil has to be trucked to refineries. Fuel Supply and Refining Operations
Utah has five petroleum refineries capable of processing approximately 197,000 barrels of crude oil per day. All five Utah refineries are classified nationally as “small refiners”. Additionally, gasoline is imported to Utah via a refined products pipeline equal to approximately the volume of the State’s largest refinery. Utah refineries also export fuel both North and South via product pipelines to Nevada, Idaho and Washington.
Refining costs and profits vary seasonally partly because of different gasoline formulations required to reduce air pollution. Each Spring, Utah refiners change their gasoline formulation to reduce the more volatile components in the gasoline which more easily evaporate and can lead to the formation of summer ozone. This change shrinks the available pool of gasoline. Utah refiners continue to produce cleaner burning fuels that greatly benefit Utah’s environment and quality of life.
Refineries are a highly complex series of plants and processes that require occasional maintenance to keep them operating at peak performance and in a safe and environmentally optimized fashion. Refinery “turnarounds” or maintenance operations can affect the supply of fuel in the Utah marketplace. Unplanned refinery outages, pipeline disruptions or other factors can also play a significant role in the supply of fuel available for sale.Consumer Demand and Economic Growth
Utah’s booming economy continues require adequate and reliable supplies of gasoline, diesel and jet fuel to keep business, industry and families moving. In addition to manufacturing gasoline and diesel, Utah’s refineries produce a significant amount of jet fuel that supplies Salt Lake’s International Airport and Hill Air Force Base.
Petroleum demand generally rises in the Spring and Summer months, and fuel prices typically increase to match in order to ensure a ready supply. Increased construction, commerce and industry associated with Utah’s robust economy all require increasing reliable fuel supplies.
Market Conditions and Your Local Gas Station
Distribution, marketing, and retailer costs and profits are also included in the retail price of gasoline. Gasoline in Utah is either shipped by pipeline to terminals or truck to individual gasoline stations.
Some retail outlets are owned and operated by refiners, while others are independent businesses that purchase gasoline from refiners and marketers for resale to the public. The price at the pump also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner. The number and location of local competitors can also affect prices. Taxes Add to the Price of Gasoline
Federal, state and local government taxes also contribute to the retail price of gasoline. Utah’s state tax is currently 29.4 cents per gallon and the federal tax is 18.3 cents per gallon. Combined with a small per gallon fee for underground storage tanks, the total tax on each gallon of gasoline in Utah is 47.81 cents per gallon.What is Octane and Why Does It Affect Price?
The octane level of gasoline refers to its resistance to combustion. Gasoline with a higher-octane level is less prone to pre-ignition and detonation, also known as engine knocking. Refiners charge more for higher octane fuel because the materials and processes required to produce higher octane fuels are expensive.
Utah refiners continue to produce clean, reliable fuels that are critical to the continued economic success and high quality of life that Utah residents enjoy.