With solid economic growth, U.S. petroleum demand (20.5 million barrels per day in Q2 2019) ran at its highest level since 2007 and was up by 178 thousand barrels per day from Q1 2019. Gasoline prices ($2.72 per gallon nationwide average in June 2019 per AAA ) have decreased 6 percent year-on-year in tandem with Diesel and Crude oil prices.

Changes in gasoline and diesel prices mirror those of crude oil prices, which are determined in the global crude oil market by the worldwide demand for and supply of crude oil. Per-barrel costs for crude oil – the No. 1 factor in the cost of producing gasoline and diesel – reflecting the global oil oil supply/demand balance and inventories, among other factors.

There are additional costs to refine, transport, and sell gasoline at retail outlets. As of January 2019, crude oil costs accounted for 53 percent of what people are paying at the pump per the U.S. Energy Information Administration . Excise taxes averaged another 17 percent. That leaves 30 percent for the refiners, distributors, and retailers.

The biggest single component of retail gasoline prices is the cost of the raw material used to produce the gasoline – crude oil. Recently, that price has ranged between $50 and $70 per barrel, depending on the type of crude oil purchased. With crude oil at these prices, a standard 42 gallon barrel translates to $1.19 to $1.67 per gallon at the pump. Excise taxes add another 49 cents a gallon on average nationwide.

The remaining 30 percent of the price is the cost to refine, transport and sell gasoline.

The federal gasoline tax is 18.4 cents per gallon, and state gasoline fees and taxes range from a low of about 14 cents per gallon in Alaska to as much as 61 cents per gallon in California and 59 cents per gallon in Pennsylvania. On average, taxes and fees currently make up approximately 17 percent of what consumer are paying at the pump .

What are the main components of the retail price of gasoline?

The cost of crude oil

Refining costs and profits

Distribution and marketing costs, plus a reasonable profit margin

Local, state and federal taxes

What determines the cost of crude oil?

The cost of crude oil is the largest factor in the retail price of gasoline. The cost of crude oil as a share of the retail gasoline price varies over time and across regions of the country. U.S crude oil prices are determined by global fundamentals, including supply and demand, inventories, seasonality, financial market considerations and expectations.

Taxes add to the price of gasoline

Federal, state, and local government taxes also contribute to the retail price of gasoline. The federal excise tax is 18.30¢ per gallon, and the federal Leaking Underground Storage Tank fee is 0.1¢ per gallon. As of January 1, 2019, state taxes and fees on gasoline averaged 28.31¢ per gallon. Sales taxes along with taxes applied by local and municipal governments also can have a significant impact on gasoline prices in some locations.

Refining costs and profits

Refining costs and profits vary seasonally and by region of the United States, partly because of the different gasoline formulations required to reduce air pollution in different parts of the country. The characteristics of the gasoline produced depend on the type of crude oil that is used and the types of processing technologies available at the refinery where it is produced. Gasoline prices are also affected by the cost of other ingredients that may be blended into the gasoline, such as ethanol. Increased demand for gasoline in the summer generally results in higher prices.

Distribution and marketing

Distribution, marketing, and retail dealer costs and profits are also included in the retail price of gasoline. Most gasoline is shipped from refineries by pipeline to terminals near consuming areas, where it may be blended with other products (such as ethanol) to meet local government and market specifications. Gasoline is delivered by tanker truck to individual gasoline stations.

Some retail outlets are owned and operated by refiners, while others are independent businesses that purchase gasoline from refiners and marketers for resale to the public. The price at the pump also reflects local market conditions and factors, such as the desirability of the location and the marketing strategy of the owner.

The cost of doing business by individual dealers can vary greatly depending on where the dealer is located. These costs include wages and salaries, benefits, equipment, lease or rent payments, insurance, overhead, and state and local fees. Even retail stations next to each other can have different traffic patterns, rent, and sources of supply that affect their prices. The number and location of local competitors can also affect price.

Gas prices one pager (PDF)