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Gouging myth out of gas

When you're paying more at the pump, don't blame the station owner. He feels your pain.

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By Aaron Smith, CNNMoney.com staff writer

As gas prices continued to hit record highs, Brooklyn motorist Daris Garnes assumed that the gas station was getting the lion's share of profits.
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NEW YORK (CNNMoney.com) -- If you think you're getting gouged at the pump - think again.

Like many other motorists, Daris Garnes thought she may be getting ripped off by her gas station when she filled up her Honda Accord in Brooklyn, N.Y., on Wednesday, a day that gasoline prices hit a new record.

"When I pull up, I don't even want to look at it sometimes," said Garnes, a speech therapist, as she paid $3.59 for a gallon of unleaded. That's more than the nationwide gas average, but it was the cheapest choice she had.

Garnes said she figured the gas stations's take was about $1.25 per gallon. Another motorist, construction worker Thomas Anthony, guessed 65 cents. But several other drivers estimated the station's take was less than a dime, and it turned out they were right.

Abby Razaque, manager of the BP station where Garnes filled up, said the owner's take was 8 cents per gallon, and that the lion's share of the proceeds go to BP.

"I get a lot of complaints," said Razaque. "I tell them I have nothing to do with the price. The [oil companies] are taking all the money that I am putting in my pocket."

For every gallon of gas, about 72% of the price goes to the producers of the crude oil from which it's made, according to the U.S. Energy Information Administration - producers like Chevron (CVX, Fortune 500), ConocoPhillips (COP, Fortune 500) and BP (BP). Exxon Mobil (XOM, Fortune 500) recently made history by reporting the highest annual profit ever for a U.S. company when it reported 2007 results.

Of the remaining price of a gallon of gas 13% goes to taxes, 8% goes to the refiners, and another 8% goes to distribution and marketing, which includes gas stations.

"They're not getting gouged by the gas stations," said Peter Beutel, energy analyst for Cameron Hanover. Beutel said that 90% of all pumps are privately owned, and those owners make anywhere from 7 to 15 cents per gallon, so that a relatively petty expense, like a pump-and-run theft, can throw off their earnings for a whole day.

"Just because you're seeing the street prices go up, doesn't mean our profit has gone up," said Tom McSweeney, a co-owner of a Shell station in Jericho, Long Island. He said his former profit margin of 12 to 14 cents has dwindled to nothing.

"I bet the average person would say we were making 40 to 50 cents a gallon," said McSweeney, adding, "I wish that were the case."

Energy experts said that price gouging at the pump is a rare occurrence, largely because there is so much competitive pressure to keep the prices low.

"I don't think it's occurring at all," said Sara Banaszak, senior economist at the American Petroleum Institute. "The biggest factor in the price of gasoline is the price of crude oil."

Where gas stations make their money is off retail goods like candy bars, tires and frozen burritos, as well as services, like oil changes and auto repairs.

"A lot of times, the gas stations are making more on the coffee and donuts than on the gasoline they're selling," said Robert Sinclair, Jr., spokesman for AAA. "Sometimes the profit on a gallon of gas for the retailer is less than a penny a gallon."

Fadel Gheit, senior energy analyst for Oppenheimer, said retailers face even lower profit margins, as rising oil prices outpace gasoline. "It doesn't matter how high prices are at the pump," said Gheit. "If oil prices rise faster, you get margin squeeze."

Under the government's economic stimulus plan, 130 million people will receive tax rebate checks for $300 and up, starting April 28. What do you plan to do with your check? How do you think the stimulus plan will affect the economy? Send us your photos and videos, or email us and tell us what you think. To top of page

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