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When crude is far cheaper than gasoline, middlemen win

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The price of crude oil continues to slide, but we're not feeling the full impact at the pump.

In August, the price of a barrel of Brent crude dropped to under $42 a barrel, the lowest price since the recession. On average, each barrel costs 47 percent less this year than it did over the same period last year, but the average cost of a gallon of gasoline is down only 29 percent.

In July and August, the spread between the cost of crude and the average cost of gasoline was over $1.50. On a week-by-week basis, the gap is the biggest it's been since the Energy Information Administration started gathering data in the 1990s.

If retail gasoline prices were down the same amount as crude, we'd be paying on average about $1.90 a gallon instead of $2.50.

Considering that Americans consumed about 70 billion gallons in just the first six months of the year, that missing 60 cents adds up to a lot—about $40 billion in savings that never made its way to the consumer.

So where does all that money go?

What we pay for when we pay for gas

Since 2000, crude has accounted for a little over half of the cost of every gallon, on average. But it varies a lot—sometimes crude is 80 percent of the price, and other times it's only 35 percent, according to data from the EIA.

About 42 cents from every gallon is taken off the top as state and federal excise taxes. The rest—about a fourth of the total cost of the gallon—goes to the refinery, distributors and marketers.

The EIA methodology uses survey data from refineries as well as spot price data to estimate how much of the cost of a gallon goes to each expense, and the Big Crunch used forecast data and average August prices to estimate August's number. That puts the amount going to middlemen—refiners, distributors and marketers—at $1.11 per gallon, 40 percent more than the same time last year and the highest level since 2007. That figure could be higher when survey results for August come in.

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According to EIA data for July, the difference between the cost of crude and the price that refiners can get for wholesale gasoline is 89 cents a gallon, the highest level recorded in the available data since 2011. That leaves a few dimes a gallon for the rest of the gas ecosystem.

Another metric used to measure that imbalance is the crack spread, which compares the cost of three barrels of crude to the products of those barrels—two barrels of gasoline and one barrel of fuel oil. As that spread has grown, oil refinery and marketing stocks have jumped as stocks for oil producers have fallen.

There are nine companies listed in the S&P 1500 oil refining and marketing sub index, six of which saw significant gains in EBITDA operating income from the first half of 2014 to the first half of 2015. Together, they brought in $14.3 billion after expenses (before tax and interest) at the beginning of this year, 37 percent more than the year before.

To be sure, the unplanned outage at the largest petroleum refinery in the Midwest in August has also contributed to a favorable environment for refineries.

"Rockets and feathers"

According to a paper by the St Louis Fed, a $10 rise in the price of a barrel of oil is correlated with an approximately 25 cent increase in the price of gasoline. However, the price of gasoline does not always change at the same rate. When oil prices shoot up, gas prices usually follow quickly, but when they drop, it takes longer for gas prices to follow. This is knows as the "rockets and feathers" phenomenon.

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The most common explanation for that disparity is market power: Sellers take advantage of the drop to make more profit, and customers are already used to the higher prices. According to the Fed paper, gas stations with fewer nearby competitors are less likely to drop prices in line with oil. In another paper on the topic, the Dallas Fed points out that inventory management and accounting practices at refineries could also play a role.

One thing is for sure: Drivers shouldn't expect to be the only ones benefiting from lower costs. Every company in the gasoline supply chain will also want their cut.