What Actually Controls The Price Of Gas In The US? - Money Digest

🌈 Abstract

What Actually Controls The Price Of Gas In The US?

🙋 Q&A

[01] What Factors Influence Gas Prices in the US?

1. What are the four major factors that directly influence the cost of gas in the US?

• Crude oil prices (set by oil-producing countries like OPEC)
• Refining costs (impacted by natural disasters and climate change)
• Distribution and marketing costs (depend on the individual gas retailer)
• Taxes (federal, state, and local)

2. What is the biggest contributing factor to gas prices? Crude oil prices, which make up 54% of the per-gallon price at the pump, according to the EIA.

3. How does OPEC influence gas prices in the US? OPEC, an organization of 13 oil-producing countries led by Saudi Arabia, controls around 60% of the world's traded petroleum supply. As a cartel, OPEC regulates and manipulates oil prices, which heavily impacts gas prices across the US.

4. Why can't the US simply bypass OPEC for oil? The US is the world's largest oil producer but still imports more crude oil than it exports, leaving prices vulnerable to the global market controlled by OPEC. The next highest oil-producing countries outside the US and OPEC are Russia and China, but relations with them are increasingly challenging, making a stable oil supply from them unlikely.

[02] Individual Factors Affecting Gas Prices

1. How do taxes impact gas prices at the individual level? Taxes make up 16% of the per-gallon price at the pump. The federal government taxes 18.4 cents per gallon, while state taxes average around 32 cents per gallon. Local sales tax can also impact gas prices.

2. How do the ownership models of gas stations affect prices? Gas stations can have different ownership models, with some owned and operated by refiners and others being independent or franchise businesses. Refinery-owned stations may receive their product via pipeline, while independent stations rely on more expensive tanker trucks, leading to higher distribution and marketing costs that are passed on to consumers.