Trending
Affordability issues continue to impact Lycoming County consumers with the rising costs of fuel on the top of the list.
Petroleum-based products do not seem to be dropping across the nation and that also means here.
The formula and reasons why are not as simple as just saying the war in Iran is driving up costs because prices account for a variety of global and domestic issues as researched and described below.
Prices at the pump in Williamsport and region
Locally, GasBuddy shows the following prices to start the week: Sam's Club – $4.20 – 611 Lycoming Mall Circle, Muncy Township, where a membership is required; Conoco – $4.22 – 1431 High St.; Sheetz – $4.22; Weis Markets, $4.22; Sunoco & 7-Eleven – $4.22 – 1601 Dewey Ave.; Sunoco – $4.25, 140 Lycoming Mall Drive; and Nittany Minit Mart – $4.29, 2300 W. Fourth St. Prices fluctuate.
AAA analysis noted that gas prices aren't budging much as crude oil is still high, at over $100 a barrel. In fact, the average for regular gasoline has stayed above $4 since late July and is more than $1 higher than a year ago.
Mideast is one factor, but not everything
A significant stumbling block remains the Strait of Hormuz in the Mideast, analysts say.
Iranian strikes on tankers there have cut oil flows through the strait to about 11.6 million barrels a day, down from a normal 17.2 million, according to news agencies tracking the volume.
That strait is the world's oil chokepoint, so the market is pricing in a big risk premium and those in the industry say it won't fully come off without some kind of U.S.-Iran agreement.
Iran-backed Houthi attacks also hit Saudi Aramco's headquarters and Riyadh's airport, and the Russia-Ukraine energy fight keeps flaring, which makes those pricing oil jittery.
President Donald Trump has said before that the nation's energy supply is solid, and that the U.S. does not need the strait and has ample domestic supplies of oil including that from taking Venezuelan oil after that nation's dictator fell in a U.S.-backed military operation.
A chemistry and business model
Gasoline and crude are tied together because, simply put, oil is the main ingredient in gas.
In the middle is a formula known as the 3-2-1 "Crack Spread," according to Bet-David Consulting.
Two barrels of oil makes two barrels of gasoline and about one barrel of diesel fuel or 3-2-1.
The spread is the refining cost to make that occur because oil comes out of the earth and is turned into petroleum-based products.
In mid-July, oil was $70 a barrel with oil coming from domestic supplies (West Texas Intermediate), North Sea or Brent crude, and Middle Eastern sites such as Dubai and Saudi Arabia
In terms of the crack spread, refiners do not bet on oil, they bet on the gap or the spread. When oil prices spike the consumer might think that refineries suffer or when oil prices crash they celebrate, but that is not the case, according to a report by Idrawcharts.
A refinery buys crude oil and sells gasoline and diesel. What refineries care about is the difference between those prices. Traders call that difference the aforementioned crack spread.
It's a strange name that is also based on chemistry.
Crude oil is a mixture of hydrocarbons, or molecules made of carbon chains of various lengths.
Many of the most valuable fuels, such as gasoline, are made of shorter chains.
A big part of refining is breaking these long, heavy molecules into shorter and lighter ones. This is done using heat, pressure and catalysts, or, literally, cracking them – thus the crack spread name, which is what a refiner earns for doing that cracking.
Simply put, the crack spread is the price of the refined product minus the price of the crude.
If a barrel of crude costs $70 and the gasoline made sells for $90, the gasoline crack is about $20 a barrel.
That $20 a barrel has to cover the costs of operating the refinery, paying the workers, energy used and leaving some profit margin.
When the spread shrinks, refiners get squeezed even if oil itself is cheaper. Oil is always priced per barrel while gasoline and diesel are priced per gallon. A barrel holds 42 gallons. So to get prices multiple the product price by 42.
As an example, gasoline at $2.20 a gallon is about $92 a barrel.
Recently, U.S. crude inventories just fell 8.6 million barrels in a week.
Gas tax
Consumers also get hit by gas taxes that are built directly into the per-gallon price seen at the pump.
The tax acts as a fixed or semi-fixed cost added to the commodity price of gasoline.
Federal and state excise taxes are typically collected higher up the supply chain at the terminal or distributor level rather than directly from the retail gas station. Wholesalers and retailers then pass those costs on to consumers.
Most gas taxes are flat per-gallon rates (such as the federal 18.4 cents-per-gallon tax). This means the tax amount does not change whether crude oil costs $50 or $100 a barrel. However, some states use variable rates tied to inflation, average fuel prices, or sales tax percentages
Pennsylvania does not have a simple flat-rate gas tax. Presently, the state rate for gasoline is about 57 or 58 cents per gallon. That places the state fifth highest in the nation. California, for instance, is 73.6 cents. Diesel fuel is taxed in Pennsylvania at 74.1 cents per gallon.
Additional fees include an extra 1.1 cents per gallon underground storage tank fee, which applies to liquid fuels for an underground storage tank fund.
Federal taxes also apply here, too, as drivers also pay the federal gas tax of 18.4 cents per gallon on top of the state rate.
So when heading to the pumps, these are among (not all) of the reasons for the continued prices consumers are paying.