Answer Man

July 23, 2014

Answer Man: What's really driving up the cost of gasoline?

Answer Man

Got questions? You've come to the right place

Your recent story about the Fairview Heights couple not making any money on their sale of gasoline makes me wonder who is making all the money? Someone has to be making tons! -- R.S. of Troy

Gas station owners must feel a lot like us journalists these days.

When readers criticize us for a paper filled with particularly bleak headlines, we say, "Hey, don't shoot us -- we're only the messenger." So I can only imagine the colorful epithets those poor station clerks hear after people watch $40, $50 and more disappear down their tank in a few seconds.

I'm no fan of $3.50-plus gas, but just as you can't blame us writers for bad news, you shouldn't yell at your friendly, neighborhood Moto or Circle K dealer, either. No matter which analysis you look at, you'll quickly find they keep only a tiny fraction of the price they post.

According to a 2012 analysis by Sageworks, a financial analysis company, gas station owners make just $1 off every $50 purchase -- 2 percent. That's even less than the 2.5 percent that Visa and MasterCard enjoyed for your convenience of using a credit card to charge your purchase.

Put another way, most independently owned and operated stations make maybe a dime on each gallon, according to the U.S. Energy Information Administration. And, that's gross profit, from which salaries, rent, etc., have to be paid, it says.

Since you can find a station every few blocks, they generally have to match their competitors, too -- although I have recently seen 40-cent differences, probably because the high-end station was right off I-64 in Caseyville. No wonder you are bombarded with video ads for Twinkies, Big Guzzlers and lotto tickets as you fill your car. That's where stations make most of their profit.

So where does all that money go? You have to remember this is not like a Mascoutah gardener bringing his tomatoes to a local farmer's market. Oil is sometimes shipped thousands of miles and has to be processed, or refined, adding to the bill at every stage.

Most -- 67 percent, according to the April 24 analysis by the EIA -- goes to the producers of the original crude oil. And, depending on where that company is, those mountains of cash are needed to find more oil -- or enjoyed as pure profit.

For example, it takes only a buck to produce a barrel of oil in Saudi Arabia while it may cost $70 or more to find, drill and pump oil out of the Gulf of Mexico or off the coast of Algeria. The EIA estimates U.S. oil companies spend an average of $24 a barrel to produce oil worldwide, but that doesn't include transportation, administration and taxes.

OK, that accounts for about $2.37 out of the $3.53 average retail price in March. Refining the crude takes another 25 cents. Then you have to get the oil from the refineries to the stations -- another quarter or so for transportation. And, don't forget the massive tax bite -- in Illinois it's about 57 cents a gallon, including the 18.4-cent federal share.

Add it all up and it comes to roughly $3.44 out of $3.53, leaving just those few pennies for the service station or convenience store. Makes me long for the days when that army of men who wore the star would pump your gas, check your oil, clean your windshield and air up your tires. And you just might have gotten a free cereal bowl or box of tissues to boot.

And, speaking of free:

Several days ago, I went to a local service station to put air in a bicycle tire. The machine cost a dollar (four quarters, actually) for about a minute's worth of air. On the machine was a sticker that said the money was going to feed starving kids. Is this legitimate or are we throwing our money "into the air"? -- Tom Whittey, of Belleville

I'm not sure what machine you used, but the promise probably was not a lot of hot air.

AIR-serv Group in Mendota Heights, Minn., for example, has its air pumps and vacuum cleaners at 65,000 locations. It pledges to contribute $100,000 per year to Feed My Starving Children, of Coon Rapids, Minn., which ships meals to malnourished kids in 70 countries.

Find more at www.air-serv.com and www.fmsc.org. I hate to be a scrooge, but I think the least service stations could do is offer free air, especially when the time allowed by those silly machines is much too short for me. You, sir, might want to invest in a cheap bicycle pump.

Today's trivia

Where is the fastest roller coaster in the United States?

Answer to Wednesday's trivia: As a boy growing up in Cuba, Xavier Cugat trained as a classical violinist and played with the Orchestra of the Teatro Nacional in Havana. So, when his family moved to New York in July 1915, the native Spaniard quickly picked up where he had left off -- playing violin solos in recitals with famed tenor Enrico Caruso. By the late '20s, though, he had put together a tango band that appeared in movies. In the 1930s, he took over the Waldorf Astoria Hotel resident band and began spreading his love of Latin music. He had big hits with "Perfidia" and "Brazil," and Dinah Shore made her first recordings with him on Victor Records.

Send your questions to Roger Schlueter, Belleville News-Democrat, 120 S. Illinois St., P.O. Box 427, Belleville, IL 62222-0427 or rschlueter@bnd.com or call 618-239-2465.

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