Gas Prices

“What’s up with gas prices?” is a question we get asked a lot.  Because crude oil is the primary component in gasoline production, the price rises and falls with the cost of crude—which is set by supply and demand on the global commodities market.

In 2008 and 2009, weak economic conditions in the U.S. and around the world led to less demand which drove prices down. Now, with the worldwide economic recovery underway, demand is on the rise again. Meanwhile, unrest in the Middle East and North Africa has put supply at risk. This combination of rising demand and the risk of reduced supply is pushing prices higher. In addition, the weakened value of the dollar means U.S. consumers are more affected by rising crude prices than the citizens of other countries.

In addition to crude oil, which comprises 68 percent of the price you pay at the pump, gasoline prices are impacted by the costs of refining, distribution, marketing and government taxes.

At $94 per barrel of crude oil (2011 Jan.-Mar. average), refiners spend over $2.20 for the amount of oil needed to make one gallon of gasoline. That $2.20 represents the largest component (more than two-thirds) of the pump price.

Taxes add an average of another 49.5 cents a gallon to the price. Of that, 18.4 cents goes to the federal government; the rest ends up in state and local government coffers. One reason the price of gasoline can vary by state is the fact that taxes often do.

Refining the crude oil, storage, delivery and retailing further add to the cost of producing gasoline. To learn more about the factors affect gas prices, read our gas prices briefing paper.