Rising Gas Prices Frustrate US Drivers

The cost of gasoline in the United States is experiencing significant and frequent changes, causing frustration for drivers and financial strain as prices reach levels not seen since 2022. On Tuesday, the national average price for a gallon of gas exceeded $4, according to AAA, fueled in part by the ongoing Iran war and its impact on global oil markets.

Factors Beyond the Gas Station

Many drivers assume local gas stations control pricing, but experts say this isn’t typically the case. Gas stations themselves aren’t necessarily profiting significantly from the increases. The volatility stems from a complex and massive oil and gas market that is difficult for stations to navigate.

Wholesale Costs and Operating Expenses

Lonnie McQuirter, director of operations at 36 Lyn Refuel Station in Minneapolis, noted that profit margins have become tighter. His station was selling regular gas for $3.399 a gallon on Wednesday, lower than the metro average. McQuirter explained that pricing is based on the cost of fuel purchased, as well as operational expenses. He also cited rising credit card fees and pump maintenance costs as contributing factors.

The Breakdown of a Gallon of Gas

According to the U.S. Energy Information Administration, roughly half the price at the pump is attributable to the cost of crude oil. Approximately 20% covers refining costs, which have increased due to the war and disruptions in the Strait of Hormuz. Gas retailers then account for about 10% of the price, covering transportation, labor, and other expenses, while taxes make up nearly 20%.

Retailer Markups and Market Dynamics

The average retailer markup is around 38 cents per gallon, with stations potentially keeping roughly 15 cents after expenses, according to data from NACS and OPIS. Patrick De Haan of GasBuddy likened the situation to the housing market, stating that gas station owners are “price takers, not makers.”

Regional Variations and Competitive Pricing

Gas prices vary significantly by state, city, and even station. Factors like state taxes – California’s taxes and fees totaled about 71 cents per gallon in 2023 compared to roughly 9 cents in Alaska – distance from refineries, and competition all play a role. Stations near competitors often use competitive pricing on outdoor signs to attract customers who may then purchase higher-margin items inside.

Impact on Sales and Overall Profits

While retailers sell millions of gallons of gas daily, rising prices don’t always translate to increased profits. Margins shrink as it becomes harder to pass on cost increases quickly. Higher gas prices can also reduce in-store sales as customers cut back on discretionary spending. Ultimately, most profits in the oil and gas supply chain are made by companies involved in crude oil extraction and refining.