Your Cheapest Route

By: Erin Tate
By: Erin Tate

All fueled up and ready to go. The Harrisonburg Transit bus keeps rolling though the price of gas keeps rising.

With pump prices surging, it helps that gas for city transport is tax-exempt. Harrisonburg pays less for fuel than the average motorist. But its current costs are higher than the usual 80 to 90 cent average per gallon.

"It's kind of a cost we have to absorb right now. There's nothing we can really do about it, but keep paying it and letting the busses roll," said David Morris, Assistant Maintenance Supervisor for Harrisonburg's Department of Transportation.

For public transportation, the city picks up the tab, but for independent contractors, pump prices come out of pocket.

"Usually, I've been paying $25 to $30 a day for gas," said Randy Pennington, a taxi driver for Yellow Cab.

As the cost of gas soars, his take-home pay plummets. But he can't pass on the cost to his customers. Taxi rates are set by the city, no matter the price at the pump.

That's helpful for passengers but hard for Pennington.

"I pay $50 more a week since the prices are up like they are right now. And if they keep going up I'll be paying $70-$75 a week for gas," he said.

According to AAA, regular unleaded gas is up 15 cents since January. And across Virginia, a gallon of gas costs roughly $1.56. That's six cents lower than the national average but more than 40 cents higher than what Virginians were paying a year ago.

Drivers still gas up and go. But for taxicabs and city transit, business has a new bottom line. It's running on "E."

If you ride the bus or take taxis often, you don't have to worry about a sudden rate increase. City council must approve of any jump in prices.

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Gas Prices

What determines the price you pay at the pump?

  • Federal, State, and local taxes are a large component of the retail price of gasoline. Taxes (not including county and local taxes) account for approximately 28 percent of the cost of a gallon of gasoline. Within this national average, federal excise taxes are 18.4 cents per gallon and state excise taxes average about 20 cents per gallon. Also, some states levy additional state sales taxes, some of which are applied to the federal and state excise taxes. Additional local county and city taxes can have a significant impact on the price of gasoline.

  • Refining costs and profits comprise about 14 percent of the retail price of gasoline. This component varies from region to region due to the different formulations required in different parts of the country.

  • Distribution, marketing and retail station costs and profits combined make up 12 percent of the cost of a gallon of gasoline. From the refinery, most gasoline is shipped first by pipeline to terminals near consuming areas, then loaded into trucks for delivery to individual stations. Some retail outlets are owned and operated by refiners, while others are independent businesses, which purchase gasoline for resale to the public. The price on the pump reflects both the retailer’s purchase cost for the product and the other costs of operating the service station. It also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.

  • In 2000, when the price of crude oil averaged $28.23 per barrel, crude oil accounted for about 46 percent of the cost of a gallon of regular grade gasoline. In comparison, the average price for crude oil in 1999 was $17.51 per barrel, and it composed 37 percent of the cost of a gallon of regular gasoline. The share of the retail price of regular grade gasoline that crude oil costs represent varies somewhat over time and among regions.

Why do gas prices fluctuate?

  • Even when crude oil prices are stable, gasoline prices normally fluctuate due to factors such as seasonality and local retail station competition.

  • Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events or domestic problems, such as refinery or pipeline outages.

  • When crude oil prices are stable, retail gasoline prices tend to gradually rise before and during the summer, when people drive more, and decline in the fall and winter, when people drive less. Good weather and vacations cause U.S. summer gasoline demand to average about six percent higher than during the rest of the year. If crude oil prices remain unchanged, gasoline prices would typically increase by 5-6 cents during the summer.

  • Vents in crude oil markets were a major factor in all but one of the five run-ups in gasoline prices between 1992 and 1997, according to the National Petroleum Council’s study U.S. Petroleum Supply - Inventory Dynamics.

  • Crude oil prices are determined by worldwide supply and demand, with significant influence by the Organization of Petroleum Exporting Countries (OPEC).

  • OPEC has the potential to influence oil prices worldwide because its members possess such a great portion of the world's oil supply, accounting for nearly 40 percent of the world's production of crude oil and holding about 67 percent of the world's estimated crude oil reserves.

  • Rapid gasoline price increases have occurred in response to crude oil shortages caused by, for example, the Arab oil embargo in 1973, the Iranian revolution in 1978, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990.

  • The most recent gasoline price increases are due in part to OPEC crude oil production cuts in 1999. In addition, higher demand from a recovering Asian economy caused more competitive bidding for crude oil supplies in the international market and was a contributing factor to an increase in gasoline prices in 1999.

  • OPEC once again cut crude oil production in Jan. 2001 to forestall anticipated excess supply in late Spring.

  • A continuing economic boom in the United States has led to greater demand for gasoline. If demand rises quickly or supply declines unexpectedly due to refinery production problems or lagging imports, gasoline inventories (stocks) may decline rapidly. When stocks are low and falling, some wholesalers become concerned that supplies may not be adequate over the short term and bid higher for available product. Such was the case in late summer 1997, as a demand surge drained gasoline stocks and prices rose rapidly.

Source: www.eia.doe.gov contributed to this report.


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