Question

How should we expect the cost of oil to affect the cost of producing gasoline, diesel and other oil-based products in the US and other parts of the world? Why?

Answer 1

We should expect the cost of oil to affect the cost of producing gasoline, diesel and other oil-based products, in the sense that gasoline, diesel and other oil-based products are produced from crude oil which is the basic input. So prices of gasoline,diesel and other oil-based products are determined by the price of crude oil. If the price of crude oil increases, the prices of gasoline, diesel and other oil-based products will automatically increase.

The prices of gasoline, diesel and oil-based products are determined by the cost of the raw materials used to produce gasoline and other products, i.e. the crude oil. Excise taxes are the another factor determinant for the cost of crude oil. There are also additional costs to refine, transport and sell gasoline and other oil products at retail outlets.

So, briefly we can explain it as,  we know that the main determinants of the retail price of gasoline, diesel and other oil products are: the cost of crude oil, refining costs, distribution and marketing costs, plus a slight profit margin and local,state and federal taxes.

The cost of crude oil is the most important factor in determining the price of gasoline and other oil products. US crude oil prices are determined by supply and demand, inventories, seasons of the year, financial market conditions and various expectations.

Taxes add another burden to consumers of gasoline and other oil products.

Refining costs of the crude oil vary seasonally and from region to region in US. Different gasoline formulations are required to reduce air pollution in various parts of the country. The features of gasoline are dependent on the type of crude oil used and the type of technologies available for refining the crude oil.

Retail price of gasoline and other oil products are dependent on distribution, marketing, retail dealer costs and profits. Gasoline and other oil products are shipped from refineries stations to terminals by pipeline nearer to consuming zones, where it may be mixed up with other products to meet local government and market needs. Gasoline and other oil products are also delivered by tanker to each and every gasoline stations. This affects the distribution price.

The cost of doing business by every single dealers vary from location to location, these costs are wages and salaries, benefits, lease or rent payments, insurance, overhead and state and local fees. The location of business and the local competitors also put an impact on price.