How do we make money? Volume!

The price of oil is given by the cost of one barrel of oil. A barrel of oil is 42 gallons. At an oil price of $138 a barrel, the price of oil is $3.29 a gallon. Yet we wonder why gasoline costs $4 a gallon. With gasoline prices in the range of $4 a gallon, this leaves about $0.70 (70 cents) a gallon for oil to be processed into gasoline and other derivative products and for gasoline to be delivered and sold at the local gasoline station. Costs that must come out of the $0.70 include transportation to oil refineries, actual oil processing in accordance with environmental regulations, delivery to the gas station and ultimately to the pump.

Taxes also are part of the price of gasoline at the pump. To begin the tax calculation, the federal tax on gasoline is $0.184 per gallon (18.4 cents). State taxes vary from state-to-state, from a low of $0.08 a gallon in Alaska to a high of $0.32 per gallon in Wisconsin. Gasoline taxes in most states are in the 18 to 25 cents a gallon range but New York state gasoline tax is 32 cents a gallon and in Pennsylvania the gasoline tax is 31 cents a gallon.

Now recall that we started with $0.70 (70 cents) a gallon over the oil price for processing, etc. the oil and for bringing gasoline to the pump at the gas station, and all together the gasoline price of $4.00 a gallon includes state and federal taxes for a total of $0.27 per gallon in Alaska to $0.51 in Wisconsin. This leaves a potential "profit" maximum of $0.33 (33 cents a gallon) in Alaska and $0.19 (19 cents a gallon) in Wisconsin.

The profit for the oil company and the gas station must come out of the 33 cents or 19 cents. However both the oil company and gas station have costs that must be added to costs they incur before setting the gasoline price to you at the pump. These costs vary but there isn’t a lot of room for oil company stockholders and gas station owners to reap the benefit of their investments. The obvious question then is how come oil companies are reporting such large profits if the numbers show the profit potential per gallon of oil to be so relatively low. The answer is volume.

Whole article is here.