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Valero Energy Corporation (VLO), Northern Oil & Gas, Inc. (NOG): What Are You Really Paying For?

Refined profits
Next in line to take a share of the price of gas are refining companies such as Phillips 66  and Valero Energy Corporation (NYSE:VLO). What’s most interesting here is that the general trend since the financial crisis is that Americans have been driving less. However, despite booming production in North America, which has caused the price of oil in the U.S. to trade at a discount to the global benchmark, gas prices have remained high as refining companies export more gasoline, which is keeping the price elevated.

Phillips 66 said last year that it was planning to double its exports by 2014 in an effort to get better pricing for its refined products. Its top competitor, Valero Energy Corporation (NYSE:VLO), is also focusing on exporting increased volumes. In fact, last quarter alone it exported an average of 240,000 barrels a day, which is just over 9% of its total daily processing volume. Bottom line here: While the U.S. is producing more of its own oil, we’re also exporting more of our own gasoline, which is keeping prices at the pump higher.

Convenience comes with a price
A third piece to the gasoline puzzle involves the distributing and marketing costs. We like to blame the corner store for profiting from the price of gasoline, but truth be told, the margins per gallon are typically squeezed when the price of oil runs up. In fact, this past July, the average retail margin went from a fairly healthy $0.21 per gallon to less than $0.06.

This is a trend that’s hurting recent Valero Energy Corporation (NYSE:VLO) retail store spinoff CST Brands , which saw its motor fuel gross margin nearly cut in half from $0.30 in the second quarter of last year to just $0.17 this past quarter. Retailers typically feel just as much pain at the pump as consumers when the price of oil begins to jump. 

The taxman cometh
The final piece of the puzzle are gasoline taxes. This is where consumers can sometimes see the biggest difference, especially when taking a long road trip. For example, I live in South Carolina, which enjoys the lowest gas prices in the country at $3.24 per gallon. Meanwhile, my parents in upstate New York are paying $3.85 a gallon, which is well above the national average. One of the reasons is that South Carolina hasn’t raised its gas tax for more than two decades. At about $0.35 per gallon, it’s nearly half of the $0.68 per gallon my parents pay in New York.

Final Foolish thoughts
While oil prices really drive the price of gasoline, it’s not the only thing fueling the price consumers pay. Instead, just as with real estate, gas prices can really be affected by location. That’s why prices can be a real pain for some, while barely an annoyance for others. However, because the bulk of the price is based on where oil is trading, the only real way to take the sting out of the pain at the pump, other than moving, is to invest in an oil company.


The article Gas Prices 101: What Are You Really Paying For? originally appeared on is written by Matt DiLallo.

Fool contributor Matt DiLallo owns shares of Phillips 66. The Motley Fool has no position in any of the stocks mentioned. 

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