How Gas Prices Are Determined

Who controls gas prices in the U.S.? There's no puppeteer, just several factors that combine to pull and push on what you pay at the pump.

Hundred dollar bills stick out of a gas tank
(Image credit: Getty Images)

Gasoline prices have been dropping for months, reversing the equally dramatic rise they embarked on this spring. From a peak of $5.02 per gallon of regular, the national average is now down to $3.68. Drivers suffering from price whiplash might be asking "Who controls gas prices?" The short answer is: No one person, company or government can really be said to set gas prices.

But it is possible to break down some of the major factors that go into determining what a gallon of gas sells for.

Let's take a look.

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Crude Oil

The Department of Energy has a handy chart that breaks down the major expenses involved in turning crude oil in the ground into the refined gas you can put in your car.

The biggest, accounting for a bit more than half the price you pay, is the price of crude oil – the raw material from which gas is refined.

The price of that raw material has been on a wild ride in recent years. In 2020, some oil prices briefly fell below $0 per barrel, because worldwide demand for fuel was so low during the worst of the pandemic that unwanted oil was filling up storage facilities to the point where some barrels had nowhere to go. Then, as the pandemic eased, fuel demand came roaring back, faster than oil producers could reopen the taps. Oil prices quickly recovered to their pre-COVID level, and then shot higher. In early 2022, when Russia invaded Ukraine, the price of benchmark West Texas Intermediate soared above $130 per barrel. More recently, it has fallen below $90 as investors worry that a global recession could sap fuel demand yet again.

Taxes

The next biggest factor determining gas prices, according to the Department of Energy, is gas taxes – specifically, the state, local and federal taxes levied on fuel.

No one loves paying taxes, but they can't be blamed for the recent run-up in gas prices. The 18.4-cent-per-gallon federal tax on gas hasn't been increased in about three decades. Some states have actually cut or suspended their own gas taxes recently in an attempt to give motorists some relief.

Sadly, those reductions didn't do much to keep the average price of gas from hitting new records earlier this year.

Other Factors Determining the Price of Gas

The remaining factors controlling gas prices are a mix of related costs: refining crude into gasoline and other fuels, transporting it to stations by pipeline and truck, and marketing it.

This bucket of costs includes refiners' profits on turning barrels of oil into barrels of gasoline, and these days, those profits are soaring. Some refineries closed due to the slump in fuel demand during the pandemic, which means bigger profit margins for those that remain, now that demand is healthier.

If you want to share in some of those profits as an investor, instead of just funding them as a driver, check out these three refiner stocks to consider buying. Maybe they will provide some comfort during your next expensive fill-up.

Jim Patterson
Managing Editor, The Kiplinger Letter

Jim joined Kiplinger in December 2010, covering energy and commodities markets, autos, environment and sports business for The Kiplinger Letter. He is now the managing editor of The Kiplinger Letter and The Kiplinger Tax Letter. He also frequently appears on radio and podcasts to discuss the outlook for gasoline prices and new car technologies. Prior to joining Kiplinger, he covered federal grant funding and congressional appropriations for Thompson Publishing Group, writing for a range of print and online publications. He holds a BA in history from the University of Rochester.