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Understanding Gasoline and What Determines Gasoline Prices!

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Last updated date: 17th Apr 2024
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An Overview of Gasoline

Around the world, gasoline is used as a fuel in vehicles. It is one of the major products which is consumed heavily worldwide. In America and Latin countries, the term gasoline is used but in Asian countries and European Union, it is referred to as petrol. One of the most important indicators in the macroeconomic scenario is crude oil prices which affect the wholesale price index and inflation of the countries. The biggest consumer of gasoline in the world is the United States of America which also has the highest usage rate per person. The United Kingdom, China, Japan and India are also major gasoline consumers.


Gasoline Prices

Gasoline is priced and sold in the form of grade. It is solid and based on octane levels in three primary grades: regular, midgrade and premium. The resistance to combustion of gasoline is referred to in the tin level. The higher octane level means gasoline is less prone to pre-ignition or engine nothing. Gasoline with higher octane level and of premium grade is the most expensive.


Main Components of the Retail Gasoline Prices

There are four main components of the retail price of gasoline, which are as follows:-

Crude Oil Cost:  It is one of the most important components of retail gasoline prices, which varies over time and regions. An increase in oil production will lead to lower prices, whereas less oil production will mean higher crude oil prices.


Cost of Refining and Profits: Defining cost varies from region to region. It is because of different gasoline formulations. The gasoline produced depends on the crude oil used and the technology used to process it at the refinery. Other ingredients which are blended into gasoline-like ethanol also determine its price.


Distribution, Marketing Cost and Profits: Gasoline is generally shipped from refineries in the form of a pipeline to the nearby consuming area, where it can be blended with other products to meet the market specifications. Also, gasoline is delivered by tanker truck to the stations. The price of gasoline at the pump reflects the conditions and factors of the market and the owner's marketing strategy. The cost of doing business with gasoline retailers also affects gasoline prices.


Taxes: Taxes by the central and local government also contribute to the retail price of gasoline. The taxes have a significant impact on gasoline prices which is according to the location basis.


Gasoline Formula

Gasoline is a chemical compound which is used as a fuel in vehicles and machines. Worldwide, it is one of the most consumed products and is a derivative of crude oil. Gasoline is a mixture of different types of alkanes, alkenes and cycloalkanes. These compounds have between 4 to 12 carbon atoms per molecule. The main components are:-

  • Isooctane

  • Butane

  •  ethyl toluene

  • Methyl tert-butyl ether 

The basic formula of gasoline, which has each carbon atom and 18 hydrogen atoms, is written as C8H18. Petrol has a basic chemical formula which is CnH2n+2. Diesel is also derived from petroleum. After fractional distillation is done in petroleum, we obtain diesel from it. Its chemical formula is C12H23. The gasoline formula is not specific because its hydrocarbon chain keeps changing as per our needs.


Case Study

To understand how the gasoline prices are determined, we will see that if we spend $1 on buying gasoline, what would be the distribution?

  • Crude Oil -  65 cents

  • Refining - 14 cents

  • Taxes - 13 cents

  • Distribution and Marketing - 18 cents

If there is any fluctuation in international crude oil prices or any increase in the tax rate, then the production cost of gasoline will increase. This will further lead to an increase in the gasoline price in the market.


OPEC Countries

OPEC stands for Organisation of Petroleum Exporting Countries. It is an intergovernmental organisation coordinating and unifying petroleum policies among member countries. It ensures stability in oil prices and a regular supply of fuels to the consuming nations and secure return on investment for the investors. There are 13 member countries in the organisation. OPEC was created in September 1960 by Iran, Iraq, Saudi Arabia, Kuwait and Venezuela in the Baghdad Conference. The secretariat of OPEC is situated in Vienna, Austria.


Conclusion 

Gasoline prices are influenced by the forces of demand and supply. Geopolitical events also impact the prices of gasoline. The most important component of determining coal prices is crude oil, the raw commodity for making gasoline. Also, crude oil is one of the wider global trade commodities. The refining process includes costs which influence gasoline prices. Gasoline prices are always seen in the news as they form part of macroeconomic scenarios and policymaking because of their role in the wholesale price index.

FAQs on Understanding Gasoline and What Determines Gasoline Prices!

1. What are the environmental impacts of Gasoline?

With the rapid development and increase in the use of motor vehicles, the use of gasoline has increased, leading to an increase in pollution. The pollution has been drastically changing from “coal level pollution” to “motor vehicle pollution”. Also, unburnt gasoline produces photochemical smog, which harms the environment. With the increasing carbon footprint, the pollution level is rising, which is a cause of environmental damage. We can mitigate this by blending ethanol with gasoline, switching to electric vehicles etc.

2. What are fossil fuels?

Fossil fuels are naturally formed materials in the earth’s crust from the dead remains of plants and animals, which are then extracted and burned as fuel. The fuel originated from plants and animals that existed millions of years ago. Fuel is formed from the decomposition of buried carbon-based organisms. Energy generated from fossil fuels is an example of non-renewable energy. Fossil fuels are in the form of solid, liquid and gaseous forms. Solid forms include coal, and liquid includes gasoline, diesel and petrol. Gases include natural gas.

3. Why is Petrol called Gasoline?

In the context of organic chemistry, suffix of -ene and -ine is used. So when the petroleum is distilled off and further used in motor vehicles which is volatile and flammable liquid hydrocarbon, petrol can be also referred to as gasoline. It is used for internal combustion in the engines. Also, gasoline is used as a solvent for fats and oil. Gasoline is one of the best fuels for energy because of its composition. It has high density which makes it best to be used in the form of fuel. This small volume of fuel provides high intensity of energy.