1. Crude Oil: The Biggest Driver (~55%)
More than half of every dollar you spend on gas was crude oil first. The global benchmark prices — West Texas Intermediate (WTI) for US markets and Brent Crude for international — set the floor for everything else.
Crude prices are set by supply and demand on commodity futures markets, but the dominant force is OPEC+ production policy. When the cartel (Saudi Arabia, Russia, UAE, and others) cuts output, supply tightens and prices rise globally — including your local station.
Other supply factors: US shale production, pipeline capacity, refinery outages, and geopolitical events like wars or sanctions. The Russia-Ukraine war in 2022 sent crude above $120/barrel because Russia supplies ~10% of global oil. That spike hit the pump within weeks.
Demand side: China's economy is the biggest wildcard. When Chinese manufacturing picks up, they consume more oil. US driving seasons (Memorial Day → Labor Day) add predictable summer demand pressure that refiners price in months in advance.
2. Refining: The Hidden Bottleneck (~13%)
Crude oil doesn't come out of the ground as gasoline. It has to be refined — a complex industrial process that cracks heavy hydrocarbons into usable products (gasoline, diesel, jet fuel, plastics).
The crack spreadis the refiner's margin: the difference between what they pay for crude and what they sell refined products for. When a major refinery goes offline for maintenance or after a hurricane, regional supply tightens fast and the crack spread explodes.
The US hasn't built a new major refinery since 1977. Refining capacity is geographically concentrated — the Gulf Coast refines ~47% of US gasoline. A single Gulf hurricane can spike prices from Texas to Maine within days.
Seasonal blends add another layer. US regulations require different gasoline formulations for summer (lower volatility to reduce smog) vs. winter. The transition between blends in spring and fall temporarily reduces supply and always shows up as a small price spike.
3. Taxes: The Fixed Floor (~17%)
Federal gas tax: 18.4 cents/gallon. It hasn't changed since 1993. State taxes range from 8.95¢ (Alaska) to 77.9¢ (Pennsylvania). Combined, taxes average about 60¢/gallon nationally — a fixed cost baked into every fill-up regardless of crude prices.
This is why California gas is always among the most expensive in the country. The state adds 68.1¢/gallon in excise tax alone, plus cap-and-trade fees, LCFS (Low Carbon Fuel Standard) costs, and a separate underground storage fee. Total regulatory burden: over $1.00/gallon above the national average.
See the full breakdown: Gas Tax by State →
4. Distribution & Marketing (~8%)
Getting refined gasoline from a Gulf Coast refinery to a station in Minnesota requires pipelines, tanker trucks, and terminal storage. The Colonial Pipeline — which runs from Houston to New York — carries ~45% of all fuel consumed on the East Coast. When it was hit by a ransomware attack in 2021, gas stations from Georgia to Virginia ran out within 72 hours.
Pipeline and tanker costs are relatively stable. But remote states (Alaska, Hawaii) pay dramatically more for distribution because they lack pipeline access. Hawaii imports most of its gasoline from Asia by ship — adding $0.60+ to every gallon before the pump.
5. Retail Margin: The Station's Cut (~7%)
Despite popular belief, gas stations make very little on fuel — typically 10–15 cents per gallon. The retail margin is competitive and compressed because consumers actively shop for the cheapest station.
Most station revenue comes from convenience store sales (drinks, snacks, cigarettes), which is why chains invest so heavily in store quality. The fuel is almost a loss leader that gets you in the door.
Brand-name stations (Shell, BP, Chevron) tend to charge a slight premium — 3–8¢/gallon — vs. independent or warehouse club stations (Costco, Sam's Club). Costco and Sam's Club consistently beat market prices by 10–25¢/gallon by running fuel as a membership benefit rather than a profit center.
Why Prices Rise Fast but Fall Slowly
You've noticed: prices jump in days but take weeks to come down. This is called the "rockets and feathers" effect, and it's well-documented in economics literature.
When crude spikes, stations pass it on immediately — they don't want to sell below replacement cost. When crude drops, stations are slower to discount because their existing inventory was bought at higher prices, and they know consumers are less price-sensitive when prices are falling.
The asymmetry is real and measurable. Studies show gas prices respond about twice as fast to crude increases as to crude decreases.
What the President Can (and Can't) Do
Presidents get blamed for high gas prices and credited for low ones — neither is fully deserved. The US President has limited direct levers:
- Strategic Petroleum Reserve (SPR) releases: Short-term supply injection. Biden released ~180M barrels in 2022 — the largest drawdown ever — and it knocked prices down about 25¢/gallon temporarily.
- Domestic drilling permits:Long-term supply effect only. New wells take 1–3 years to produce meaningfully. "Drill, baby, drill" won't fix a price spike today.
- Gas tax holiday: Congress has to approve it. Saves consumers about 18¢/gallon if fully passed through — but evidence shows retailers often pocket part of the savings.
- Sanctions and foreign policy: Real but indirect. Iran sanctions remove supply; Saudi diplomacy influences OPEC+ cuts.
The dominant driver is still crude oil markets — and OPEC+ has more power over those than any US president.
The Bottom Line
Gas prices are the product of a global commodity market, American infrastructure constraints, state tax policy, and local competition. The single biggest thing you can do to pay less: buy at a warehouse club (Costco, Sam's Club) and use GasBuddy or our state price tracker to find the cheapest station near you before you fill up.