How often should a business change the price customers pay for their products? Well if you are in the business of gasoline the answer to that question is multiple times per day. While most of us have been well aware of this for awhile and have accepted the insanity that is constantly fluctuating pricing, we may not be fully conscious of “the why” behind these changes. Believe it or not, the price is also not always going up!
To begin with, we need to understand the major factors in gasoline pricing. The biggest and most volatile of these is the raw material, crude oil. As a product that is universally needed but only sources in limited locations, most customers are at the mercy of the few geopolitical players controlling these supplies. The raw material accounts for approximately 54% of the price we see at the pump. Next is the refining process, which accounts for about 14% of the price. This price varies based on the technology used to created the purity of gasoline required by region. The next major factor is taxation which on average is 16% of the pricing. While this amount doesn’t change day by day, it does show why different regions have large variations in pricing. For example, California currently has a per gallon tax rate of 77.9 cents. If you cross the border to Arizona, this drops to 19 cents per gallon! Currently, the lowest state tax rate is its most distant in Alaska with a rate of 8.95 cents per gallon. Finally, the last aspect of the price is distribution and marketing. This can vary depending on location, business type, or whether the location is an independent business or part of the supply chain.
So with the main factors established, why does the price change daily? The biggest reason for the variance is decisions made by the top players in the acquisition of the raw material, specifically the Organization of the Petroleum Exporting Countries (OPEC). These organizations can create artificial surplus or shortages based on time of year, needs of their region, or strategy to financially cripple competition. Historically, prices will be lower during winter months, when crude oil regions are politically stable, and when more suppliers are heavily extracting the raw material.
https://www.beaconjournal.com/story/news/2024/03/01/gas-prices-up-down-gasoline-costs/72789454007