Andrew Gross
Andrew Gross, national spokesperson, AAA, Washington, DC. GasPrices.AAA.com
When we see gas prices rising, it’s tempting to look for someone to blame. Does the US president control gas prices? OPEC? How exactly is pricing determined? Bottom Line Personal asked national AAA spokesman Andrew Gross these and other questions about gas pricing.
By the time it reaches your local gas station, gasoline has passed through many hands. No single entity bears responsibility for its final price. Key factors in pricing: Cost of crude oil…refining costs…federal and state taxes…marketing and distribution…supply and demand…and seasonality and weather. Precisely how much each of these affects the price varies from week to week. But in general, these numbers will give you a good idea of what makes up the price of gasoline.
Crude oil prices typically account for just over half of the pump price. As of November 2024 (most recent data available), crude oil prices accounted for 56% of what you pay at the pump. Oil is truly a global commodity, subject to supply-and-demand forces on the other side of the world. The US is easily the world’s leading oil producer and is producing record amounts, but demand in rising economies such as China and India can drive up pricing, as can turmoil in the Middle East. Example: After Russia invaded Ukraine, US gas prices spiked because sanctions against Russia brought market uncertainty. President Biden tapped the US’s Strategic Petroleum Reserve (SPR), the world’s largest supply of emergency crude oil, to help stabilize prices. The SPR is a useful tool that a US president can use to influence oil prices. Foreign policy decisions also may do so, but geopolitical choices cannot be guaranteed to have a favorable impact.
Generally, this accounts for somewhere in the neighborhood of 15% to 20% of the pump price. As of November 2024, 18% of gasoline pricing was tied to the product’s marketing and distribution. Gas station owners set their own prices—some sell at very tight margins, relying on convenience-store merchandise for profit. Also: Store location can have a big influence on price. In big cities, high real estate costs almost always are reflected in the price of gas. Filling stations at interstate exits can charge more because people will pay for the convenience of not having to stray far for gas.
These costs, determined by Congress and state legislatures, generally account for about 15% of a gallon of gas. In November 2024, it was 17%.
In November 2024, another 9% of what you paid at the pump went to refinery costs. There are times it can be as high as about 15%. Refineries must be shut down about twice a year for maintenance…and when this happens, people often ask, Why are gas prices rising? Shutdowns can cause temporary regional supply disruptions.
The more we drive and the less fuel-efficient our vehicles, the more gasoline demand rises, leading to higher prices. If you’ve been wondering, Why are gas prices going down?, one big reason is decreased demand. Electric vehicles now comprise 22% of new-vehicle sales, and we’re only using 8.7 million gallons of gasoline daily, down from around 10 million before the pandemic.
In the US, gasoline is sold in a summer blend between about March and September…and a winter blend for the rest of the year. The summer blend costs more, so gas prices rise predictably during the warmer months. Hurricane season also can affect the price of gas, as storms shut down refineries or disrupt distribution of fuel.
