current gas prices


Whenever we need to fill our gas tanks and begin to survey current gas prices, we become very frustrated with the current situation. Everyone from Big Bird to your grandmother puts the current gas prices blame on oil producers and even though they carry some burden, it’s not the whole story. Not many people fully understand the process that determines current gas prices. Just like anything else in the market, there is a complex supply chain in the gasoline industry that determines the prices we pay at the pump. To understand how current gas prices are determined we need to look into the process a bit deeper.

Firstly, the first factor that determines current gas prices is crude oil production. The amount of crude oil produced in the world is determined by the oil-exporting nations, mainly OPEC (Organization of the Petroleum Exporting Countries). The amount of crude oil these countries produce affects the price of a barrel of oil which in turn affects current gas prices. The notion is that current gas prices will increase only if production is low and decrease if production is high. However, sometimes current gas prices will go up even though production is at a very high level, because there are 2 types of oil: light sweet crude and heavy sour. Light sweet is easier to refine, but current supplies are running low and even though we have an ample amount of heavy sour, refineries need to undergo costly changes to properly refine it. This means that current gas prices are not an absolute representation of oil production, they only hint at the possibility that current gas prices are determined by production.

Secondly, as mentioned above, current gas prices can be greatly influenced by the refineries which produce the gasoline product. It doesn’t matter how much crude oil is being produced in the market, if refineries don’t have all the tools needed to accelerate their refining process then current gas prices will tend to remain high. If we think about it, we don’t buy crude oil at the pump, we buy gasoline and it’s the supply of gasoline that determines how current gas prices fluctuate at the pump.

Then we have the gatekeepers of current gas prices. After the oil is refined, it has to be transported to distribution points and money has to be spent marketing the brand. If there is poor transportation infrastructure or not enough ways to move the supply of gasoline then current gas prices will be affected by the lack of supply of gasoline at the pump, even though we might have enough aggregate supply of gasoline nationwide. Furthermore, if prices of diesel fuel increase then the higher cost of transportation will also be reflected in current gas prices. In addition, companies have to recover the cost of marketing which is then passed onto current gas prices—mainly the consumer. 


We are familiar with the next step. Just like most of us have to do every couple of weeks or so, the gasoline companies have to pay taxes. They have to pay Federal excise tax, state excise tax and some additional taxes that add up to over 28 cents per gallon and guess who pays that at the pump—enough said.

Finally, we come to the pump. Most people blame gas price markups on the retailers, but in reality service stations usually only add a couple of cents per gallon to current gas prices. In addition, some states have laws that prohibit service stations from charging less than a percentage over invoice to protect the smaller service stations. So as you can see current gas prices are almost completely determined by the time they get to the pump. In addition, anything that may affect the supply chain will also have an adverse effect on current gas prices like wars, natural disasters, political unrest, economic growth of other countries and yes even the production of ethanol which reduces the supply of oil imports in the country(less supply means higher prices). The point here is that current gas prices are determined by so many factors that it’s difficult to put the blame on oil producers or gas companies. They might actually be the problem, but how can we know?