It seems as if the price of gasoline is always on the rise, and it never really gives anybody a breather. And while historical data doesn't exactly show this to be wholly true, it definitely has seasonal swings and long-term trends that can take your breath away.
For example, according to the Federal Reserve Bank of St. Louis, the average price of unleaded regular gasoline in America in June 2024 was $3.601 per gallon. Compare that to the month I started driving, April 1996. It was $1.251 nationally then (it was under a buck where I came from).
Gas prices peaked in June 2022 at $5.058 nationally, so relatively speaking, that $3.601 looks pretty good. But still, it's higher than it was earlier this year, when gas was as low as $3.221 in January. So, what gives? Why are gas prices so much higher now?
What goes into the price of gasoline
I was curious about what went into the price of gasoline, so I went to a knowledgeable source: the American Petroleum Institute. This industry group actually knows what causes gas prices to go up because it knows what goes into gas prices and has studied trends in the industry for 90 years.
There are four major contributors to gas prices.
1. Crude oil prices
The price of crude oil is responsible for about half the cost of gasoline at the pump, and that makes sense because you really can't have gas without it. So as crude oil prices soar, so do gasoline prices. The greater the demand, such as in higher driving windows like summer, the higher the cost.
2. Refining costs
You can't just use crude oil as it is -- it has to be processed and refined to be able to be used in cars. The labor, equipment, other raw materials, and so forth are responsible for about a quarter of the cost of gasoline prices.
3. Distribution and marketing costs
Distribution and marketing are important for every kind of industry, and it's no different for gasoline. From trucking gas to gas stations to winning over new commercial customers, distribution and marketing can account for about 11% of the price of gas at the pump.
4. Federal and state taxes
We pay a lot of taxes on gasoline that we may not even be aware of. Tax on gasoline is paid by the gallon, and the state tax can vary a lot (that's part of the reason that gas in California is so much more expensive than in Texas), but you can expect that about 14% of your gasoline price is taxes. Federal gasoline tax is $0.184 per gallon, and the average of state taxes is $0.324 per gallon.
All of these factors together make up the price of gasoline, no matter where you live in the United States.
One more important factor
Gasoline itself is also reformulated throughout the year to work based on the weather conditions. If it's cold outside, gas must be blended to have a higher Reid Vapor Pressure (RVP), which allows it to evaporate at a lower temperature; if it's hot out, a lower RVP is necessary to keep gas from evaporating too quickly.
Butane is the major component that's modified to change from winter to summer RVPs. Since butane is cheaper than other gasoline components, winter blend gasoline is cheaper because it contains more of this fuel. Due to this, the price of gasoline will change dramatically when it's time to switch from winter to summer blends, and back again.
What to do about high gas prices
You know why gasoline is so high right now, but short of blending your own, is there anything you can really do about it? (Do not blend your own fuel at home.)
YES! There are a few ways to stretch your gas budget:
- Keep your tires properly inflated
- Reduce the weight of your car by cleaning your trunk out
- Drive on interstates with your air conditioner running (instead of open windows) to reduce drag
- Maintain a cruising speed between 30 and 55 miles per hour on surface roads (where possible)
- Always accelerate and brake steadily
But you can also take advantage of cash back programs at gas stations or opt for a membership to a discounted gas station. For example, Costco offers serious savings on gasoline. Right now, on July 23, 2024, my local Costco in Springfield, Missouri, has gas for $3.05 per gallon; its nearest competition is at $3.17. It's a savings of $0.12 per gallon savings -- it can add up quickly if you're road tripping or even just driving to a lot of summer ball games.
We can't do a lot about high gas prices, but we can plan for them, do our best to find the lowest gas prices around, and even spend a little money on memberships to ensure we get gas prices that can't be beat.
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FAQs
You can't really blame Republicans or Democrats for it -- the reason gas prices are so high is due to the price of crude oil, refining, and gasoline taxes. You can save money on gasoline with simple changes like always checking how much air is in your tires.
What is the real reason fuel prices are high? ›
According to the U.S. Department of Energy, those factors include: The cost of raw crude oil, which fluctuates based on international supply and demand. The cost to refine crude oil into gasoline, which rises during warmer months. Taxes, which vary state-to-state.
Who controls gas prices in the USA? ›
Petroleum prices are determined by market forces of supply and demand, not individual companies, and the price of crude oil is the primary determinant of the price we pay at the pump.
Who controls or decides the oil prices? ›
Like most commodities, the fundamental driver of oil's price is supply and demand in the market. The cost of extracting and producing oil is also an important factor. Oil markets are composed of speculators who are betting on price moves, and hedgers who are limiting risk in the production or consumption of oil.
Which state has the most expensive gas? ›
Most expensive US states for gas
- California ($5.45)
- Hawaii ($4.78)
- Washington ($4.67)
- Nevada ($4.63)
- Oregon ($4.44)
- Alaska ($4.37)
- Arizona ($4.13)
- Utah ($3.96)
Event analysis reveals that the Russia–Ukraine war and its subsequent events amplified the high-frequency fluctuation of crude oil prices, resulting in an increase of $37.14, or 52.33% (WTI), and $41.49, or 56.33% (Brent).
What state has the lowest gas prices? ›
September 2023 Gasoline Price Updates
Mississippi has the cheapest gasoline prices in the U.S., where the average cost is $3.29 per gallon. It also has the least expensive diesel prices out of the Top 10 states. Louisiana has the second-cheapest gas, with the average cost hitting $3.36 per gallon.
Does the US government have anything to do with gas prices? ›
Federal, state, and local government taxes also contribute to the retail price of gasoline. The federal tax on motor gasoline is 18.40 cents per gallon, which includes an excise tax of 18.30 cents per gallon and the federal Leaking Underground Storage Tank fee of 0.1 cents per gallon.
Who controls the oil in the world? ›
OPEC members at the beginning of 2021 held about 72% of the world's total proved crude oil reserves, and in 2022, accounted for about 38% of total world crude oil production.
What drives oil prices? ›
Supply and Demand
The relationship between supply and demand affects all commodity prices, including oil. Here are a few examples of how supply and demand work: High supply and low demand equals low prices: When the supply of a product increases, the price goes down.
In 2019, after the acquisition of USA Gasoline's parent company Andeavor by Marathon Petroleum, many USA Gasoline locations were (as of 2020) in the process of being rebranded to Marathon's now-former subsidiary, Speedway, now wholly owned and operated by 7-Eleven.
How much does it cost to produce a barrel of oil in the US? ›
Production expenses, such as the cost of goods sold, operating expenses, and production taxes, totaled $28.06 per barrel of oil equivalent in the first quarter of this year, 59% more than the pre-pandemic average and the highest for any quarter during the past five years.
Who does the US sell oil to? ›
The top five destination countries of U.S. total petroleum exports by export volume and percentage share of U.S. total petroleum exports in 2023 were: Mexico—1.17 million b/d—11% China—0.98 million b/d—10% The Netherlands—0.86 million b/d—9%
What state has the worst gas prices? ›
The American Automobile Association tracks average gas prices in every state. Mississippi has the lowest gas prices with an average cost of $2.937 per gallon. California's gas prices are the highest in the US with an average cost of $4.794 per gallon.
What is the highest gas price ever recorded? ›
Adjusted for inflation, the average price of gas in 1981 would have equalled $2.42 a gallon in 2020. To which drivers in 2022 could only say: Give us that deal! According to CNN Business, the price of gas at the pumps across the nation met an all-time-high average of $5.02 per gallon on June 14, 2022.
What state has the highest cost of living? ›
Despite having the highest cost of living ($55,491), Hawaii also has the lowest annual average salary ($61,420) among these 10 states. This leaves residents with an annual disposable income of $5,929–the lowest out of all 50 states.
Why is US oil production so high? ›
Crude oil production in the United States began increasing again in 2009, as producers increasingly applied hydraulic fracturing and horizontal drilling techniques, and has increased steadily since.
Why are oil prices going up? ›
Rising crude oil prices in our forecast are the result of falling global oil inventories. We estimate global oil inventories decreased by 0.4 million barrels per day (b/d) in 1H24 and will fall by 0.8 million b/d in 2H24. Inventory withdrawals stem in part from ongoing OPEC+ production cuts.
Where does the US get its oil? ›
The top five source countries of U.S. gross petroleum imports in 2023 were Canada, Mexico, Saudi Arabia, Iraq, and Brazil.
Does OPEC control gas prices? ›
Because of its large market share, the decisions OPEC makes can affect global oil prices. Its members meet regularly to decide how much oil to sell on global markets. As a result, when they lower supply in response to falling demand, oil prices tend to rise.
