Questions and Answers About the Oil Industry and Fuel Prices

Let’s discuss some questions I have seen bantered-about the Internet recently. Here are some short answers which might help us all understand what is going-on behind the scenes.

Is some oil better than others?

Yes! Oil is found on our planet in a variety of qualities, and is either considered the best “Light Sweet Crude” (i.e., Texas, Saudi Arabia) or something of less quality (Venezuelan). High sulfur content oil is less desirable, as the sulfur must be removed (via filtration and other methods). However, even high sulfur oil becomes valuable as it is the primary source of sulfur used in industry and farming today (a soil additive – fertilizer source). The quality of oil and gas from “fracking,” a rather controversial method these days, is considered poor.

How much gasoline and diesel can we get from a barrel of oil?

From each 42 gallon barrel of oil, we derive many petroleum-based products, all of which are used in our lives every day. Here is the typical yield:

19 to 20 gallons of gasoline.

9 gallons of diesel.

4 gallons of jet fuel.

8 to 9 gallons of other products, all of which are an integral part of our lives.

Why is diesel so expensive?!

The ratio of diesel from a barrel of oil is not easily manipulated, based on a plethora of internet-based resources. Gasoline is a rather “short-chained” hydrocarbon while diesel is a longer chained “oil-like” hydrocarbon. Refining processes basically extract the barrel of oil in steps, and these steps involve reducing the size of the molecule. Diesel ratios can be manipulated to an extent, but that’s all. Further, new laws require low-sulfur diesel, which requires more work (and cost).

What does it cost to make gasoline and why are oil companies making so much money?

Here is a cost breakdown of a $3.25 gallon of gas (Per EHOW and the US Energy Information Administration, all are approximate amounts):

69%, or $2.21, for refinery costs.

13%, or $0.42, for federal taxes.

7%, or $0.23, for state taxes (this varies by state, of course!).

12%, or $0.39, for transportation costs.

The big profits for oil companies appear to come from “spread.” This represents the difference between what it really costs to get that oil and the price the oil company can earn for the product. Oil companies operate their own wells, and this oil production cost is far lower than $100 a barrel. They still sell that harvested oil at market price, realizing those big profits.

Why did gas prices just go up 10 cents overnight?!

There is, per EHOW, a tight coupling behind oil price hikes and gasoline price hikes. Retailers boost prices instantly to cover the expected cost of the next gasoline load, expecting that next load to cost more.

When oil prices drop, gasoline prices fall slowly, until price wars and competition drive prices back-down.

What governs the overall prices for gas and diesel?

The motivating pricing factors for gasoline, diesel, and other petroleum products are governed by oil prices. Like all other commodities in our world, oil prices are based on two fundamental concepts, and neither should be a mystery to any of us.

Economic: Supply and demand (US demand is down; demand in developing countries is up; unexpected energy reserve or production increases or decreases).

Human: Fear and greed (market volatility, supply line interruptions (war, disaster)).

What are the long term trends for energy prices?

Recent Lundberg surveys indicate US demand for gasoline is “dismal.”

US oil demand is down and will never recover to our prior historic levels (we are driving less and our autos are becoming far more fuel efficient); China’s (et al) economy is just beginning to walk, and they’ll run before long. What this does to oil prices in the future has yet to be seen, but it is likely bad news for those whose budgets are already challenged at the gas pump here in the US.


Petroleum History:

Oil Refinery Info:

Oil Refinery Info:

Oil Basics:

Products from Oil:

Oil Price Movements:

Oil Company Profit/Sales Tax Info:

The real oil company profit numbers??:

Wholesale Gasoline Pricing:

Lundberg Letter Price Info:

Fracking History from

Fracking Info:

Fracking and chemical danger, The Daily Beast:

US Energy Consumption Rates:

China Energy Consumption Rates:

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