If you’ve ever pulled up to the pump and promptly freaked out over the price per gallon, you’re not alone. And sometimes it seems like that number can fluctuate wildly from week to week, or even day to day. So what gives? Here are some of the factors that are influencing the price of gas so you can have a better sense of what’s, er, driving costs:
- Crude oil costs. According to the U.S. Energy Information Administration, over 50 percent of the cost of gas is determined by the cost of crude oil — that is, oil right from the ground. The biggest determinants of these prices are supply and demand — so when production goes up, prices may go down, and vice versa. A lot of this is influenced by the economy, so you may notice that when the economy is doing well, demand for crude oil is boosted, and gas prices change too.
- Taxes. They may not play a starring role in the price of gas (in September 2019, they were responsible for about 19 percent of the average American price of $2.59 per gallon), but taxes matter a ton. Taxes can also partially explain why the cost of gas varies so significantly from state to state. While the federal tax rate charged at every gas station across the U.S. is the same, each state sets its own individual tax rates, meaning some charge sales tax while others tack on environmental fees and other costs.
- Distribution and marketing. You may not think of gas stations as supreme masters of sly marketing tactics, but brand appeal and distribution significantly influence the price of gas (playing about a 15 percent role in the overall cost). Even the assortment of brand-name snack items in the service station can affect the amount you pay at the pump!
- Location. As we mentioned with taxes, where you fill your gas tank matters. But taxes are just part of the picture. Other factors, like the distance from the original supply, retail competition, operating costs, and any disruptions to the supply can all factor into the price. If there’s a hurricane that hits the U.S., for example, that sort of natural disaster can cause refinery shutdowns or transportation issues that affect the supply and drive up costs.
While there’s not a lot you can do about your state’s tax situation or the price of crude oil, understanding the factors that contribute to the price at the pump may help you better prepare for fill-ups. Of course, all these factors only affect the sticker price of each gallon. The number of gallons used is the part you control. Hopping on a bike, the bus, an e-scooter, or relying on your own two feet are great ways to save on gas.And, we must add, this choice can lead to savings for pay-per-mile car insurance customers, too. Get saving!
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Michelle Konstantinovsky is a San Francisco-based freelance journalist, UC Berkeley alumna, and Metromile customer.