According to the EIA, the biggest factor affecting gasoline prices is the cost of the crude oil from which the gas is refined. The increase in the cost of crude oil over the past decade can be attributed to both supply and demand factors. On the demand side, a growing world economy has increased demand for crude oil. On the supply side, the Organization of the Petroleum Exporting Countries (OPEC), whose members produce over 40% of the world’s crude oil and possess about two thirds of the world’s crude oil reserves, can sometimes significantly influence prices by setting an upper production limit for members. Crude oil prices also spike due to conflicts and disruptions in the international and domestic oil supply.
In addition to the price of crude oil, refining costs and profits, taxes, and distribution costs also affect gas prices. The chart below explains the breakdown of the price consumers pay at the pump.
The EIA also explains the factors affecting regional gas price differences, which include:
- distance from supply;
- supply disruptions;
- retail competition and operating costs; and
- environmental programs that add to costs of production, storage, and distribution.
