Why Do Gas Prices Sometimes Soar Higher Than Oil Costs?

This phenomenon happens more than many people realize. Gas can sometimes rise higher than the cost of oil, making things confusing for consumers who mistakenly believe the price of gas is fully dependent on the price of oil. In reality, there is more than one factor involved in pricing gasoline.

Back in 2011, this happened when oil was at $113 a barrel but gas prices were already rising to $4 or more per gallon. Even though gas prices have significantly dropped since then, it is still vital consumers understand how gas pricing works.

There are four main factors that influence the cost of gasoline:

  • The cost of crude oil is the biggest deciding factor for the cost of gasoline. These prices are determined by supply and demand and also change with what area of the world they are being purchased from. With the US now producing more of its own oil, the prices of crude oil have dropped immensely over the last ten years.
  • Refining costs also play a role in the cost of a gallon of gasoline. This can vary by state, depending on the process of refining that is used. The refining process may require various ingredients, including ethanol, which can change the cost.
  • Taxes are also a factor that drives up the cost of gasoline. There are three types of taxes placed on a gallon of gas. Federal taxes are the same in all states, while state and county taxes vary for each area of the country.
  • Distribution and marketing make up the final factors that influence gasoline prices. This includes the cost of purchasing the gas by independent retailers who then need to mark up the price so they can make a profit. Those who have relationships with the refineries are typically able to offer gas at a lower price.

Keeping these four factors in mind will help individuals to better understand what causes their gas bill to increase or decrease each time they stop at the pump. If you would like further information on topics such as this one, browse around this site. With changing information being made available, it is important consumers stay abreast of the latest news.