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What drives up gas prices? It's more than just the oil

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Associated Press
Published:
When Jay Ricker, owner of the BP gas station off Interstate 70 in Plainfield, Ind., set the price of unleaded gasoline at $3.44 per gallon on Monday of last week, it was 4 cents higher than the Friday before.
That alone might have been irritating to drivers paying the highest gas prices in more than two years. It was even more so because it happened on a day when the price of crude oil, which is used to make gasoline, fell almost $1 a barrel.
"It's up 20 cents one day, down 10 cents the next day," says Oscar Elmore, a courier who was filling up his Ford Taurus at a RaceTrac service station in Dallas recently. "It sounds kinda fishy to me."
Gas prices rise when oil prices rise, and fall when oil prices fall -- except when they don't. What you pay at your gas station depends on an array of factors, from what happens on an exchange in New York to what the competition is charging.
This can rankle drivers, especially these days. Gas reached a national average of $3.51 a gallon on Monday. That's up 14 cents, or 4 percent, over the past week. The week before, the average rose 20 cents, the steepest increase since September 2008. In Washington state, AAA reported an average of $3.60 a gallon for regular, up 12 cents in a week, 34 cents in a month and 65 cents in a year. The Seattle-Bellevue-Everett average was $3.66,
Unlike an iPhone or a pair of jeans or a Big Mac, oil and gas are commodities, and their prices can change every second at the New York Mercantile Exchange and other trading hubs. Those far-off changes affect the cost of the next day's commute.
Sellers of commodities, like gas station owners and refineries, price their product based not on what it costs to produce it, but on what it costs to replace it. Stations like the Plainfield BP, which gets shipments of gas several times a week, must constantly adjust their prices to keep up with the changing costs of their shipments.
Oil is the biggest factor in gas prices. It accounts for 50 to 70 percent of the cost. Recent upheaval in the Middle East and strong demand for oil around the world have pushed oil prices over $100 a barrel for only the second time in history. But the price of a gallon of gas at the pump rises -- and, yes, falls -- for a number of other reasons.
Oil prices can be moved by geopolitics, the value of the dollar, extreme weather or Chinese demand. Gas prices can be moved by oil prices, refinery problems or even weather that might keep drivers at home.
In the next few weeks, gas prices are expected to rise as refiners switch to a more expensive blend of gasoline designed to help protect against evaporation during the warmer summer months.
"We have to pay whatever the market says we do. It's an instantaneous world," says Joe Petrowski, CEO of Gulf Oil, a big gasoline wholesaler.
There's no way to know exactly where the oil used to make the gasoline sold at the Plainfield BP came from, or even where the gas was refined. Oils from many sources are mixed together on their way to a refinery, and gasolines from many refineries are mixed together on their way to a fuel terminal, where gas is stored before trucks take it to gas stations.
Every day at 5 p.m., BP tells Ricker what the rack price will be starting at 6 p.m. That price is good for 24 hours.
Ricker hires a trucker to go to the terminal a short drive away in Indianapolis, fill 'er up with 10,000 gallons and bring it to his station. Then Ricker decides what price to charge customers based on his ultimate concerns: the Speedway and Circle K stations that share an intersection with him.
There are only two or three pennies per gallon in profit selling gas for most station owners. What Ricker really wants is to attract customers to sell the truly precious liquids: Not the gasoline and diesel outside, but the water and soft drinks inside.

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