August 1, 2008
The news at the pump is grim: With the average cost of a gallon of gas well above $4 and rising, people are asking, "What happened?" Unfortunately, there is no simple answer. But here is what government and industry experts say are some key factors that impact fuel prices:
Rising demand, dwindling supply. Like every commodity, gasoline's cost is determined by supply, demand and competition. The odds are stacked against us on all three fronts:
Component costs of gas. According to the Department of Energy, the breakdown for the four cost components of a gallon of gas is:
Gas station expenses. The price can also reflect the costs associated with operating a service station, including expenses for rent, salaries and accepting payment through credit and debit cards, if station operators choose to do so. One component of the cost to accept cards, which gas retailers' pay to their banks, is interchange fees, which enable the payment system to function.
To help ease the pain at the pump, Visa recently capped the per–transaction interchange fee for Visa–branded consumer debit card purchases at $0.95 per transaction. A similar fee restructuring is also in place for Visa credit card fuel purchases. On a $60 fill–up, this reduction yields a 14 percent savings in interchange fees; for a $120 fill–up, the interchange savings would be 43 percent.
Visa's hope is that oil companies will in turn pass some of these savings along to their stations and ultimately to customers, who are bearing the brunt of gas sticker shock.
Knowing why gasoline is so expensive doesn't make it any less painful on your wallet, but it should help you better understand the facts behind who is part of the problem and who is working to be part of the solution.
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