Every time you pull up to the pump, it feels like a game of chance. One day, it’s a bargain; the next, you’re paying way more than expected.
While it’s easy to blame oil companies, politicians, or even your local gas station, the truth is that no single person or entity sets the price of fuel. Instead, a web of factors—ranging from global events to refining costs—shapes what you pay at the pump. Below, we’re breaking down 10 key factors that drive the ups and downs of gas prices.
The gasoline we put in our cars is derived from crude oil. In fact, most of the cost of gas comes from the cost of crude oil itself. Global oil prices fluctuate due to a variety of factors, including supply and demand and geopolitical tensions. When crude oil prices rise, so does the cost of gasoline.
Crude oil must be refined to become gasoline, and the refining process adds its own cost to the pump price. Refinery expenses include the cost of labor, equipment, and compliance with environmental regulations. Seasonal changes also impact costs: Refineries switch to a different fuel blend in the summer to meet air quality standards, often leading to higher prices.
Gas is subject to taxation from the federal government down to the local level, and this added cost is factored into the final price. For instance, state and local taxes vary, so gas prices can differ depending on where you fill up.
Gas must be delivered from petroleum companies to gas stations, so there are associated transportation costs. The farther gas has to travel—whether by plane, train, or automobile—the higher the cost.
Gas is a product and, like any product, has marketing costs. Gas stations and oil companies attract customers with marketing tactics, such as advertising, promotions, and loyalty programs. While these strategies don’t make up the majority of the final price per gallon, they’re still a factor.
While some gas stations are affiliated with oil companies—Shell, Exxon, etc.—many are independent companies that purchase gas from refiners and add their own costs on top before reselling it to consumers.
The amount of available gas is another factor in the price. Natural disasters, refinery shutdowns, or international disruptions can lead to shortages that drive up costs. Conversely, an oversupply of oil or gasoline can cause prices to drop.
When the demand or projected demand for gas puts a significant dent in the supply, the price goes up. For example, summer travel and holiday road trips increase the demand for gas, driving up the cost per gallon.
Foreign policy and geopolitics can cause significant fluctuation in gas prices. For example: Amidst rising tensions between their two nations, President Biden visited major oil producer Saudi Arabia in 2022 to ask the Saudi government to increase oil production and thereby supply. However, the Saudis declined, and gas prices rose.
International calamities such as Russia’s 2022 invasion of Ukraine can result in skyrocketing fuel prices around the globe. In that instance, the U.S. and other countries introduced sanctions including a ban on the importation of oil from Russia—a major oil-producing country—resulting in a supply shortage that drove up prices.
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Sources:
https://www.kiplinger.com/personal-finance/604688/how-gas-prices-are-determined
https://www.eia.gov/energyexplained/gasoline/factors-affecting-gasoline-prices.php
https://www.eia.gov/energyexplained/gasoline/price-fluctuations.php
https://www.cnbc.com/2022/07/04/high-us-gas-prices-weigh-on-demand-with-impact-on-consumption.html
https://www.cnn.com/2021/06/23/politics/joe-biden-gas-price-fact-check/index.html https://www.theguardian.com/business/2022/jul/18/oil-price-rises-joe-biden-saudi-output-petrol-diesel-prices
https://www.bbc.com/news/business-63855030
https://www.forbes.com/advisor/personal-finance/why-are-gas-prices-rising
https://www.nytimes.com/2022/03/10/business/russia-ukraine-war-gas-prices.html
https://www.afpm.org/newsroom/blog/do-refineries-set-price-gasoline
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