U.S. gas prices are rapidly increasing, with drivers now facing the highest pump prices since 2022. The surge is largely attributed to instability in oil markets, particularly related to international conflicts.

Understanding the Factors Behind Rising Prices

Prices at the pump can fluctuate daily, even between nearby stations, prompting drivers to seek the best possible deals. However, experts emphasize that individual gas retailers typically don't dictate these price changes, nor do they necessarily profit significantly from rising costs.

The Role of Crude Oil and Refining

According to the U.S. Energy Information Administration, roughly half the price of gasoline is determined by the cost of crude oil. Approximately 20% goes to refiners who process crude oil into gasoline. Retailers account for nearly 20% of the price, covering transportation, labor, and other operational expenses.

Retailer Margins and Expenses

Lonnie McQuirter, director of operations at 36 Lyn Refuel Station in Minneapolis, noted that his profit margins have become tighter. He currently prices regular gas at $3.399 a gallon, 18 cents below the metro average. McQuirter explained that pricing is based on fuel purchase costs and operational efficiency.

Jeff Lenard, a vice president at NACS, stated that retailers’ markup has averaged about 38 cents a gallon over the past five years, with stations potentially keeping around 15 cents per gallon after covering expenses.

Gas Stations as 'Price Takers'

Patrick De Haan, head of petroleum analysis at GasBuddy, likened gas station owners to homeowners selling property. “If I was selling a house today, I’d be beholden to whatever the housing market is,” De Haan said. “That’s the same for gas station owners. Whatever the price of oil and gasoline are, they are a price taker, not maker.”

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 and competition also influence pricing.

Impact on Retailers and Consumers

Garrett Golding, assistant vice president for energy programs at the Federal Reserve Bank of Dallas, explained that while higher gas prices may initially benefit oil companies, a significant spike could eventually reduce demand. He also noted that increased fuel costs can lead to decreased spending inside gas stations.

“So it’s not always the case that higher prices mean the service station owners are actually doing better,” Golding said. Most profits are generated upstream by companies involved in crude oil extraction and refining.