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Once an oil company finds a field and exploits it to produce crude, it sells the unrefined to refiners by contracts. The plethora of contracts signed between oil companies and dealers, oil companies and refiners, refiners and independents dealers determine the price of gas.
The spot market, on the other hand fills the gap left by the contracts market. When a refiner needs extra oil to meet his contract, he finds people with surplus oil on the spot market, which trades in actual barrels for immediate sale.
The futures market represents the collective state of the oil market at a particular moment. Fluctuations on the futures market are driven by information and its price guide, and the contract and spot markets.
Refineries are places where crude oil gets converted into gas. Gas from a refinery is sold at the “rack price”, which is the cost of gas to dealers and is influence by the spot and future market. It is also where branded gas begins to exert a price premium. There are several costs associated with branded gas -- the brand name carries a premium, the contract premium and costs involved in advertising.
Oil companies set the prices at company owned states, by looking at the prices of other stations in the market. Oil companies allow dealers to sell gas at a slightly inflated margin to ensure profits to the gas station.
State and federal taxes account for 18 percent of the price of gas and is factored into the baseline price of gas.
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