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Explainer: What Key Factors Influence Gas Prices?

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The Four Factors that Influence U.S. Gas Prices

Explainer: What Key Factors Influence Gas Prices?

Across the United States, the cost of gas has been a hot topic of conversation lately, as prices reach record-breaking highs.

The national average now sits at $5.00 per gallon, and by the end of summer, this figure could grow to $6 per gallon, according to estimates by JPMorgan.

But before we can have an understanding of what’s happening at the pump, it’s important to first know what key factors dictate the price of gas.

This graphic, using data from the U.S. Energy Information Administration (EIA), outlines the main components that influence gas prices, providing each factor’s proportional impact on price.

The Four Main Factors

According to the EIA, there are four main factors that influence the price of gas:

  • Crude oil prices (54%)
  • Refining costs (14%)
  • Taxes (16%)
  • Distribution, and marketing costs (16%)

More than half the cost of filling your tank is influenced by the price of crude oil. Meanwhile, the rest of the price at the pump is split fairly equally between refining costs, marketing and distribution, and taxes.

Let’s look at each factor in more depth.

Crude Oil Prices

The most influential factor is the cost of crude oil, which is largely dictated by international supply and demand.

Despite being the world’s largest oil producer, the U.S. remains a net importer of crude oil, with the majority coming from Canada, Mexico, and Saudi Arabia. Because of America’s reliance on imports, U.S. gas prices are largely influenced by the global crude oil market.

A number of geopolitical factors can influence the crude oil market, but one of the biggest influences is the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia.

Established in 1960, OPEC was created to combat U.S. dominance of the global oil market. OPEC sets production targets for its 13 member countries, and historically, oil prices have been linked to changes in OPEC production. Today, OPEC countries are responsible for about 60% of internationally traded petroleum.

Refining Costs

Oil needs to be refined into gasoline before it can be used by consumers, which is why refining costs are factored into the price of gas.

The U.S. has hundreds of refineries across the country. The country’s largest refinery, owned by the Saudi Arabian company ​​Saudi Aramco, processes around 607,000 barrels of oil per day.

The exact cost of refining varies, depending on a number of factors such as the type of crude oil used, the processing technology available at the refinery, and the gasoline requirements in specific parts of the country.

In general, refining capacity in the U.S. has not been keeping up with oil demand. Several refineries shut down throughout the pandemic, but even before COVID-19, refining capacity in the U.S. was lagging behind demand. Incredibly, there haven’t been any brand-new refining facilities built in the country since 1977.

Taxes

In the U.S., taxes also play a critical role in determining the price of gas.

Across America, the average gasoline tax is $0.57 per gallon, however, the exact amount fluctuates from state to state. Here’s a look at the top five states with the highest gas taxes:

RankStateGas tax (per gallon)
1California$0.87
2Illinois$0.78
3Pennsylvania$0.77
4Hawaii$0.77
5New Jersey$0.69

*Note: figures include both state and federal tax

States with high gas taxes usually spend the extra money on improvements to their infrastructure or local transportation. For instance, Illinois doubled its gas taxes in 2019 as part of a $45 billion infrastructure plan.

California, the state with the highest tax on gas, is expecting to see a rate increase this July, which will drive gas prices up by around three cents per gallon.

Distribution and Marketing Costs

Lastly, the costs of distribution and marketing have an impact on the price of gas.

Gasoline is typically shipped from refineries to local terminals via pipelines. From there, the gasoline is processed further to ensure it meets market requirements or local government standards.

Gas stations then distribute the final product to the consumer. The cost of running a gas station varies—some gas stations are owned and operated by brand-name refineries like Chevron, while others are smaller-scale operations owned by independent merchants.

The big-name brands run a lot of advertisements. According to Morning Consult, Chevron, BP PLC, Exxon Mobil Corp., and Royal Dutch Shell PLC aired TV advertisements in the U.S. more than 44,495 times between June 1, 2020, and Aug. 31, 2021.

How Does the Russia-Ukraine Conflict Impact U.S. Gas Prices?

If only a fraction of America’s oil comes from Russia, why is the Russia-Ukraine conflict impacting prices in the U.S.?

Because oil is bought and sold on a global commodities market. So, when countries imposed sanctions on Russian oil, that put a squeeze on global supply, which ultimately drove up prices.

This supply shock could keep prices high for a while unless the U.S. falls into a recession, which is a growing possibility based on how recent data is trending.

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Misc

How Is Aluminum Made?

Aluminum is one of the world’s most widely used metals, but producing it is a complex process. Here’s a look at where it comes from.

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how is aluminum made?

How is Aluminum Made?

Aluminum is one of our most widely-used metals, found in everything from beer cans to airplane parts.

However, the lightweight metal doesn’t occur naturally, and producing it is a complex process.

The above infographics use data from the USGS, Aluminium Leader, and other sources to break down the three stages of aluminum production.

The Three Stages of Aluminum Production

Each year, the world produces around 390 million tonnes of bauxite rock, and 85% of it is used to make aluminum.

Bauxites are rocks composed of aluminum oxides along with other minerals and are the world’s primary source of aluminum. After mining, bauxite is refined into alumina, which is then converted into aluminum.

Therefore, aluminum typically goes from ore to metal in three stages.

Stage 1: Mining Bauxite

Bauxite is typically extracted from the ground in open-pit mines, with just three countries—Australia, China, and Guinea—accounting for 72% of global mine production.

Country2021 Mine Production of Bauxite (tonnes)% of Total
Australia 🇦🇺110,000,00028.2%
China 🇨🇳86,000,00022.1%
Guinea 🇬🇳85,000,00021.8%
Brazil 🇧🇷32,000,0008.2%
India 🇮🇳22,000,0005.6%
Indonesia 🇮🇩18,000,0004.6%
Russia 🇷🇺6,200,0001.6%
Jamaica 🇯🇲5,800,0001.5%
Kazakhstan 🇰🇿5,200,0001.3%
Saudi Arabia 🇸🇦4,300,0001.1%
Rest of the World 🌍15,500,0004.0%
Total390,000,000100.0%

Australia is by far the largest bauxite producer, and it’s also home to the Weipa Mine, the biggest bauxite mining operation globally.

Guinea, the third-largest producer, is endowed with more than seven billion tonnes of bauxite reserves, more than any other country. Additionally, Guinea is the top exporter of bauxite globally, with 76% of its bauxite exports going to China.

After bauxite is out of the ground, it is sent to refineries across the globe to make alumina, marking the second stage of the production process.

Stage 2: Alumina Production

In the 1890s, Austrian chemist Carl Josef Bayer invented a revolutionary process for extracting alumina from bauxite. Today—over 100 years later—some 90% of alumina refineries still use the Bayer process to refine bauxite.

Here are the four key steps in the Bayer process:

  1. Digestion:
    Bauxite is mixed with sodium hydroxide and heated under pressure. At this stage, the sodium hydroxide selectively dissolves aluminum oxide from the bauxite, leaving behind other minerals as impurities.
  2. Filtration:
    Impurities are separated and filtered from the solution, forming a residue known as red mud. After discarding the mud, aluminum oxide is converted into sodium aluminate.
  3. Precipitation:
    The sodium aluminate solution is cooled and precipitated into a solid, crystallized form of aluminum hydroxide.
  4. Calcination:
    The aluminum hydroxide crystals are washed and heated in calciners to form pure aluminum oxide—a sandy white material known as alumina.

The impurities or red mud left behind in the alumina production process is a major environmental concern. In fact, for every tonne of alumina, refineries produce 1.2 tonnes of red mud, and there are over three billion tonnes of it stored in the world today.

China, the second-largest producer and largest importer of bauxite, supplies more than half of the world’s alumina.

Country2021 alumina production (tonnes)% of total
China 🇨🇳74,000,00053%
Australia 🇦🇺21,000,00015%
Brazil 🇧🇷11,000,0008%
India 🇮🇳6,800,0005%
Russia 🇷🇺3,100,0002%
Germany 🇩🇪1,900,0001%
Ireland 🇮🇪1,900,0001%
Saudi Arabia 🇸🇦1,800,0001%
Ukraine 🇺🇦1,700,0001%
Spain 🇪🇸1,600,0001%
Rest of the World 🌍15,100,00011%
Total139,900,000100%

Several major producers of bauxite, including Australia, Brazil, and India, are among the largest alumina producers, although none come close to China.

Alumina has applications in multiple industries, including plastics, cosmetics, and chemical production. But of course, the majority of it is shipped to smelters to make aluminum.

Stage 3: Aluminum Production

Alumina is converted into aluminum through electrolytic reduction. Besides alumina itself, another mineral called cryolite is key to the process, along with loads of electricity. Here’s a simplified overview of how aluminum smelting works:

  1. In aluminum smelter facilities, hundreds of electrolytic reduction cells are filled up with molten cryolite.
  2. Alumina (composed of two aluminum atoms and three oxygen atoms) is then dumped into these cells, and a strong electric current breaks the chemical bond between aluminum and oxygen atoms.
  3. The electrolysis results in pure liquid aluminum settling at the bottom of the cell, which is then purified and cast into its various shapes and sizes.

China dominates global aluminum production and is also the largest consumer. Its neighbor India is the second-largest producer, making only a tenth of China’s output.

Country2021 Aluminum Smelter Production (tonnes)% of total
China 🇨🇳39,000,00059%
India 🇮🇳3,900,0006%
Russia 🇷🇺3,700,0006%
Canada 🇨🇦3,100,0005%
United Arab Emirates 🇦🇪2,600,0004%
Australia 🇦🇺1,600,0002%
Bahrain 🇧🇭1,500,0002%
Iceland 🇮🇸880,0001%
U.S. 🇺🇸880,0001%
Rest of the World 🌍9,400,00014%
Total66,560,000100%

As is the case for alumina production, some of the countries that produce bauxite and alumina also produce aluminum, such as India, Australia, and Russia.

Roughly a quarter of annually produced aluminum is used by the construction industry. Another 23% goes into vehicle frames, wires, wheels, and other parts of the transportation industry. Aluminum foil, cans, and packaging also make up another major end-use with a 17% consumption share.

Aluminum’s widespread applications have made it one of the most valuable metal markets. In 2021, the global aluminum market was valued at around $245.7 billion, and as consumption grows, it’s projected to nearly double in size to $498.5 billion by 2030.

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Misc

What Are Birthstones?

In this graphic, we look deep into 12 popular birthstones.

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What are Birthstones?

What Are Birthstones?

Many cultures throughout history have revered gemstones.

Gemstones are minerals, rocks, or organic matter that have been chosen for their beauty, durability, and rarity, and then cut or faceted, and polished to make jewelry or other human adornments. There are over 300 gemstones currently documented.

A birthstone is a gemstone that represents a person’s period of birth—usually corresponding to the month or zodiac sign.

In this graphic based on data from the American Gem Trade Association, we look deep into 12 popular birthstones.

What do Birthstones Mean?

Different ancient cultures revered gemstones and connected them to their calendar systems, so there are different lists of birthstones and months that can have more than one gemstone. In Hinduism, for example, there are nine gemstones associated with the Navagraha (celestial forces including the planets, the Sun, and the Moon), known in Sanskrit as Navaratna (nine gems).

Another origin of birthstones traces back to the book of Exodus in the Bible. In Exodus 28, Moses sets forth directions for making special garments for Aaron, the Hebrews’ High Priest and Moses’ elder brother. Specifically, the breastplate was to contain 12 precious gemstones, representing the 12 tribes of Israel.

Given the historical age and numerous translations of the Bible through the ages, there’s been a lot of debate around the identification of the 12 gemstones and no agreement on what the gems actually were.

About 1,500 years after Aaron’s time, in the first centuries of the Christian era, scholars started associating the breastplate gems with the signs of the zodiac. During the 18th century AD, gem traders began to sell gemstones based on a person’s birth month.

BirthstoneBirth MonthHardness
(1-10)
Price
(USD per 1 carat size)
Producing Country
GarnetJanuary 6.5-7.5$175Namibia, Sri Lanka, Russia
Amethyst February 7.0$90Brazil, Zambia
Aquamarine March 7.5-8.0$900Brazil, Tanzania, Kenya
DiamondApril 10.0$11,200Botswana, Congo, Russia
EmeraldMay8.0$7,000Colombia, Brazil
AlexandriteJune 8.5$23,500Brazil, Russia, India
RubyJuly 9.0$10,000Myanmar, U.S., Thailand
Peridot August 6.5-7.0$650U.S., Pakistan, Myanmar
SapphireSeptember9.0$3,500India, Australia, Madagascar
OpalOctober7.0-7.5$350Australia, Mexico, U.S.
CitrineNovember 7.0$70Brazil, Zambia
ZirconDecember6.5-7.5$400Cambodia, Sri Lanka, Vietnam

In some cultures, it is generally agreed that wearing a gemstone during the month when it is the birthstone heightens its healing powers.

The Birthstones Market

The majority of colored gemstones are extracted by artisanal mining communities around the world, in a very decentralized market.

Gemstone prices can vary from $68 per carat for citrine (November) up to $23,500 per carat for Alexandrite (June). The United States is the leading global market, buying roughly $24 billion in gemstones per year.

Besides different colors and prices, birthstones are also measured according to their hardness. The hardness is evaluated using a scale of 1-10 created by Friedrich Mohs that considers the ability to resist scratching. Diamonds (April) rank 10, being 58 times harder than any other mineral on Earth.

To this day, jewelers continue to add options to birthstone lists. Citrine and spinel (August), for example, are modern additions. Likewise, Tanzanite (December)—the second fastest-selling colored gemstone after Sapphire (September)—was only discovered in 1967 by herders in Tanzania.

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