U.S. gas prices are rapidly increasing, reaching levels not seen since 2022, largely due to disruptions in oil markets. Drivers are facing the challenge of fluctuating prices, requiring them to strategically time fill-ups and search for the best deals.

Factors Beyond the Gas Station

Experts emphasize that individual gas retailers typically don't dictate price changes, nor do they significantly profit from rising costs. The primary driver of these increases stems from a volatile and complex global oil market.

Wholesale Fuel Costs & Operating Expenses

Lonnie McQuirter, director of operations at 36 Lyn Refuel Station in Minneapolis, notes that margins have become tighter. His station posted $3.399 a gallon for regular gas on Wednesday, lower than the metro average. He attributes the higher prices to increased wholesale fuel costs, rising credit card fees, and pump maintenance expenses.

According to the U.S. Energy Information Administration, roughly half the price at the pump covers the cost of crude oil. Refiners account for approximately 20% of the price, while retailers receive around 10% to cover transportation, labor, and other expenses.

Retailer Margins

The convenience store trade group NACS reports that retailers' average markup has been around 38 cents per gallon over the past five years. After covering expenses, stations may retain roughly 15 cents per gallon. Patrick De Haan, head of petroleum analysis at GasBuddy, compares this to the housing market, stating gas station owners are “price takers, not makers.”

Regional and Tax Variations

Gas prices vary significantly by state, city, and even station. Taxes play a substantial role, with California’s gas taxes and fees totaling about 71 cents per gallon in 2023, compared to roughly 9 cents in Alaska. Distance from refineries, retailer type, and competition also influence pricing.

Competitive Pricing Strategies

Gas stations near competitors often use competitive pricing on outdoor signs to attract customers, hoping they will purchase higher-margin items inside the store. Neal Walters, a partner at Kearney, highlights that gas stations are unique in displaying prices visibly before customers enter.

Impact on Retailers and Consumers

Despite selling millions of gallons daily, retailers don't necessarily see large gains when prices rise. Margins shrink as it becomes harder to pass on increased costs quickly. Garrett Golding, assistant vice president for energy programs at the Federal Reserve Bank of Dallas, notes that prices tend to rise rapidly but fall slowly.

Higher gas prices can also reduce in-store sales as customers cut back on spending. Most profits in the oil and gas supply chain are made by companies involved in crude oil extraction and refining. While these companies may benefit in the short term, they remain cautious about potential demand reductions.